IDEAS home Printed from https://ideas.repec.org/a/arp/tjssrr/2018p962-969.html
   My bibliography  Save this article

Bulls and Bears and Bankruptcy- An Early Warning of Distress

Author

Listed:
  • Eka Bertuah

    (Faculty of Economics and Business, Esa Unggul University, Jakarta, Indonesia)

  • Erlane K. Ghani*

    (Faculty of Accountancy, Universiti Teknologi MARA, Malayasia)

Abstract

This study examines possible indicators of financial distress: financial ratio; financial decision; the preferences of investors; and economic macro conditions. Based on these indicators, the model of financial distress was constructed using capital structure theory. The population in this study is manufacturing companies listed on The Indonesian Stock Exchange from 2003 to 2016. This study relies on the composite market index to detect whether the market is bullish or bearish using regression analysis time series. Then, the factor analysis and logistic regression are used. Models which predict financial distress in bearish markets are more accurate than in a bullish market. Investors, therefore, are more vulnerable ina bullish market. Equity financing will reduce the probability of financial distress in both bullish and bearish markets. This supports the pecking order theory in capital structure - when the companies need funding, an early funding alternative is to retain earnings.

Suggested Citation

  • Eka Bertuah & Erlane K. Ghani*, 2018. "Bulls and Bears and Bankruptcy- An Early Warning of Distress," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 962-969:5.
    • Handle: RePEc:arp:tjssrr:2018:p:962-969
    as

    Download full text from publisher

    File URL: https://www.arpgweb.com/pdf-files/spi5.1-962-969.pdf
    Download Restriction: no
    File URL: https://www.arpgweb.com/journal/7/special_issue/12-2018/5/4
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Wruck, Karen Hopper, 1990. "Financial distress, reorganization, and organizational efficiency," Journal of Financial Economics, Elsevier, vol. 27(2), pages 419-444, October.
    2. Michael Faulkender & Rong Wang, 2006. "Corporate Financial Policy and the Value of Cash," Journal of Finance, American Finance Association, vol. 61(4), pages 1957-1990, August.
    3. Ball, R & Foster, G, 1982. "Corporate Financial-Reporting - A Methodological Review Of Empirical-Research - Reply," Journal of Accounting Research, Wiley Blackwell, vol. 20, pages 245-248.
    4. Kahya, Emel & Theodossiou, Panayiotis, 1999. "Predicting Corporate Financial Distress: A Time-Series CUSUM Methodology," Review of Quantitative Finance and Accounting, Springer, vol. 13(4), pages 323-345, December.
    5. Richard Whitaker, 1999. "The early stages of financial distress," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 23(2), pages 123-132, June.
    6. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    7. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    8. Ball, R & Foster, G, 1982. "Corporate Financial-Reporting - A Methodological Review Of Empirical-Research," Journal of Accounting Research, Wiley Blackwell, vol. 20, pages 161-234.
    9. Michael R. Roberts & Amir Sufi, 2009. "Control Rights and Capital Structure: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 64(4), pages 1657-1695, August.
    10. Sunti Tirapat & Aekkachai Nittayagasetwat, 1999. "An Investigation of Thai Listed Firms' Financial Distress Using Macro and Micro Variables," Multinational Finance Journal, Multinational Finance Journal, vol. 3(2), pages 103-125, June.
    11. Lubom??r L??zal, 2002. "Determinants of Financial Distress: What Drives Bankruptcy in a Transition Economy? The Czech Republic Case," William Davidson Institute Working Papers Series 451, William Davidson Institute at the University of Michigan.
    12. Altman, Edward I. & Haldeman, Robert G. & Narayanan, P., 1977. "ZETATM analysis A new model to identify bankruptcy risk of corporations," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 29-54, June.
    13. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 109-131.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:arp:tjssrr:2019:p:95-102 is not listed on IDEAS
    2. Pindado, Julio & Rodrigues, Luis & de la Torre, Chabela, 2008. "Estimating financial distress likelihood," Journal of Business Research, Elsevier, vol. 61(9), pages 995-1003, September.
    3. Cakir, Murat, 2005. "Firma Başarısızlığının Dinamiklerinin Belirlenmesinde Makina Öğrenmesi Teknikleri: Ampirik Uygulamalar ve Karşılaştırmalı Analiz [Machine Learning Techniques in Determining the Dynamics of Corporat," MPRA Paper 55975, University Library of Munich, Germany.
    4. Kim, Soo Y. & Upneja, Arun, 2014. "Predicting restaurant financial distress using decision tree and AdaBoosted decision tree models," Economic Modelling, Elsevier, vol. 36(C), pages 354-362.
    5. Antonio Davila & George Foster & Xiaobin He & Carlos Shimizu, 2015. "The rise and fall of startups: Creation and destruction of revenue and jobs by young companies," Australian Journal of Management, Australian School of Business, vol. 40(1), pages 6-35, February.
    6. Mark Clintworth & Dimitrios Lyridis & Evangelos Boulougouris, 2023. "Financial risk assessment in shipping: a holistic machine learning based methodology," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 25(1), pages 90-121, March.
    7. Elisa Ughetto & Andrea Vezzulli, 2011. "What role can mutual guarantee consortia play for financing innovation? A firm-level study for Italy," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 3(4), pages 294-319.
    8. Mohamed Salah Elzalabany, 2025. "Market Responses to Financial Distress: A Comparative Study of the U.S. and Chinese Markets," International Journal of Science and Business, IJSAB International, vol. 45(1), pages 14-29.
    9. Duc Hong Vo & Binh Ninh Vo Pham & Chi Minh Ho & Michael McAleer, 2019. "Corporate Financial Distress of Industry Level Listings in Vietnam," JRFM, MDPI, vol. 12(4), pages 1-17, September.
    10. Aaro Hazak & Kadri Männasoo, 2007. "Indicators of corporate default : an EU based empirical study," Bank of Estonia Working Papers 2007-10, Bank of Estonia, revised 04 Sep 2007.
    11. Sumaira Ashraf & Elisabete G. S. Félix & Zélia Serrasqueiro, 2019. "Do Traditional Financial Distress Prediction Models Predict the Early Warning Signs of Financial Distress?," JRFM, MDPI, vol. 12(2), pages 1-17, April.
    12. Cristina Martínez-Sola & Pedro J. García-Teruel & Pedro Martínez-Solano, 2018. "Cash holdings in SMEs: speed of adjustment, growth and financing," Small Business Economics, Springer, vol. 51(4), pages 823-842, December.
    13. John Nkwoma Inekwe, 2016. "Financial Distress, Employees’ Welfare and Entrepreneurship Among SMEs," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 129(3), pages 1135-1153, December.
    14. Vo, D.H. & Pham, B.V.-N. & Pham, T.V.-T. & McAleer, M.J., 2019. "Corporate Financial Distress of Industry Level Listings in an Emerging Market," Econometric Institute Research Papers EI2019-15, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    15. Layla Khoja & Maxwell Chipulu & Ranadeva Jayasekera, 2016. "Analysing corporate insolvency in the Gulf Cooperation Council using logistic regression and multidimensional scaling," Review of Quantitative Finance and Accounting, Springer, vol. 46(3), pages 483-518, April.
    16. Ewert, Ralf & Szczesny, Andrea, 2001. "Countdown for the New Basle Capital Accord: Are German banks ready for the internal ratings-based approach?," CFS Working Paper Series 2001/05, Center for Financial Studies (CFS).
    17. Jayne M. Godfrey, 1994. "Foreign Currency Accounting Policy: The Impact of Asset Specificity," Contemporary Accounting Research, John Wiley & Sons, vol. 10(2), pages 643-671, March.
    18. Tang, Tony T., 2009. "Information asymmetry and firms' credit market access: Evidence from Moody's credit rating format refinement," Journal of Financial Economics, Elsevier, vol. 93(2), pages 325-351, August.
    19. Geng, Ruibin & Bose, Indranil & Chen, Xi, 2015. "Prediction of financial distress: An empirical study of listed Chinese companies using data mining," European Journal of Operational Research, Elsevier, vol. 241(1), pages 236-247.
    20. Clas Bergström & Theodore Eisenberg & Stefan Sundgren & Martin T. Wells, 2005. "The Fate of Firms: Explaining Mergers and Bankruptcies," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 2(1), pages 49-85, March.
    21. Foreman, R. Dean, 2003. "A logistic analysis of bankruptcy within the US local telecommunications industry," Journal of Economics and Business, Elsevier, vol. 55(2), pages 135-166.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arp:tjssrr:2018:p:962-969. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Managing Editor (email available below). General contact details of provider: http://arpgweb.com/?ic=journal&journal=7&info=aims .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.