Determinant of Corporate Financial Distress in an Emerging Market Economy: Empirical Evidence from the Indonesian Stock Exchange 2004-2008

Koes Pranowo
Graduate School of Management and Business Bogor Agricultural University, Indonesia
Graduate Program of Management ABFI Institute of Perbanas Jakarta, Indonesia
E-mail: kpranowo@gmail.com (preferred) or koes@sism.co.id

Noer Azam Achsani
Department of Economics and Graduate School of Management and Business
Bogor Agricultural University, Indonesia
E-mail: achsani@yahoo.com (preferred) or achsani@mb.ipb.ac.id

Adler H.Manurung
Graduate School of Management and Business Bogor Agricultural University, Indonesia
Graduate Program of Management ABFI Institute of Perbanas Jakarta, Indonesia
E-mail: manurung_adler@yahoo.com

Nunung Nuryartono
Department of Economics and Graduate School of Management and Business
Bogor Agricultural University, Indonesia
E-mail: nuryartono@yahoo.com

Abstract
This study empirically examines the dynamics of corporate financial distress of public companies (non financial companies) in Indonesian (IDX) for the period of 2004- 2008. Using panel data regression, we analyze internal and external factors affecting corporate financial distress. To distinguish the status of financial condition, the process of integral corporate financial distress is classified into four steps: good, early impairment,deterioration and cash flow problem companies.

The results show that current ratio (CR), efficiency (Eff), equity (EQ) and dummy variable of the status good financial condition (D3) have positive and significant influences to Debt Service Coverage (DSC) as a proxy of financial distress. On the other hand, leverage (Lev) has a negative and significant relation with DSC. Other variables such as profit, retain earning (RE), good corporate governance (GCG) and macroeconomic factor have no significant impact on the status of corporate financial distress. Furthermore, the analysis indicated that profitable companies should not be a guarantee that the companies can survive to fulfill its liabilities. Liquidity of companies which can be a prominent point can be recognized by evaluating cash flow performance.

Keywords: Debt Service Coverage (DSC), Panel Data, Corporate Financial Distress,Indonesia Stock Exchange (IDX).

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