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Selecting Early Warning Indicator To Identify Corporate Sector Distress: Efforts To Strengthen Crisis Prevention

Author

Listed:
  • Arlyana Abubakar

    (Bank Indonesia)

  • Rieska Indah Astuti

    (Bank Indonesia)

  • Rini Oktapiani

Abstract

This research aims to develop early warning indicator (EWI) which can provide earlier signal on financial distress in corporate sector. Therefore, effort to prevent deeper eterioration can be anticipated early and financial system stability remains resilient. In the first phase, based on corporate financial report, indicator candidates are grouped into four categories: liquidity indicator, solvency indicator, profitability indicator, and activity indicator. Indicator selected as EWI is the one which can predict corporate distress event in 2009 Q1 with the least statistical error. Statictis evaluation result shows that in aggregate indicators debt to equity ratio (DER), current ratio (CR), quick ratio(QR), debt to asset ratio (DAR), solvability ratio (SR), and debt service ratio (DSR) can give signal in a year prior to the distress event in 2009 Q1, so that the indicators can become EWI for corporate financial distress.

Suggested Citation

  • Arlyana Abubakar & Rieska Indah Astuti & Rini Oktapiani, 2015. "Selecting Early Warning Indicator To Identify Corporate Sector Distress: Efforts To Strengthen Crisis Prevention," Working Papers WP/7/2015, Bank Indonesia.
    • Handle: RePEc:idn:wpaper:wp072015
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    early warning indicator; financial distress;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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