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Predicting the financial distress of Indonesian manufacturing companies: an application of the multinomial logit model

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  • Jaja Suteja
  • Ardi Gunardi
  • R. Avianty Octavia

Abstract

This study aims to provide empirical evidence on the factors influencing a company's financial distress. This study examines the role of financial ratios attained from financial statements in predicting the financial distress of manufacturing companies listed in the Indonesia Stock Exchange from 2009 to 2011. The research sample consists of a group of 100 healthy companies, the group of negative net income companies that experience distress for two consecutive years consists of 14 companies, and the group of negative equity book value that experiences financial distress for two consecutive years consists of five companies. The multinomial logit regression was used to test the hypothesis. Results indicate that financial ratios attained from financial statements, namely, profit margin ratio, profitability, and financial leverage, are significant variables in predicting the financial distress of manufacturing companies listed in the Indonesia stock exchange.

Suggested Citation

  • Jaja Suteja & Ardi Gunardi & R. Avianty Octavia, 2017. "Predicting the financial distress of Indonesian manufacturing companies: an application of the multinomial logit model," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 10(3/4), pages 250-256.
    • Handle: RePEc:ids:ijmefi:v:10:y:2017:i:3/4:p:250-256
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