Selection of Early Warning Indicator to Identify Distress in The Corporate Sector: Crisis Prevention Strengthening Efforts
Keywords:
early warning indicator, financial distress
Abstract
This study aims to develop an Early Warning Indicator (EWI) that can provideearly signals in the presence of pressure on the financial condition of the corporate
sector. Thus, efforts to prevent deeper deterioration can be anticipated earlier in
order to maintain the stability of the financial system. In the first stage, based on the
company’s financial reports, the probable indicators are grouped into four categories
i.e. liquidity indicator, solvency indicator, profitability indicator and activity indicator.
The indicators, selected as EWI, are the indicators that can predict the occurrence of
corporate distress events, in the Q1 of 2009, with the minimum statistical error. The
results of the statistical evaluation showed that in terms of aggregate, the indicators of
Debt to Equity Ratio (DER), Current Ratio (CR), Quick Ratio (QR), Debt to Asset Ratio
(DAR), Solvability Ratio (SR) and Debt Service Ratio (DSR) signal within a year before
a distress event occurs in the Q1 of 2009. Thus, these indicators can be considered as
EWI in the presence of corporate financial distress.
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References
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Platt, H., dan Platt, M. B. (2002). Predicting Financial Distress. Journal of Financial Service Professionals, 56: 12-15.
Pranowo, K., et. al. (2010). Determinant of Corporate Financial Distress in an Emerging Market Economy: Empirical Evidence from the Indonesian Stock Exchange 2004-2008. International Research Journal of Finance and Economics, Issue 52.
Surjaningsih, N., Yumanita, D. dan Deriantino, D. (2014). Early Warning Indicator Risiko Likuiditas Perbankan. Bank Indonesia Working Paper No. 1.
Wiehle, U., et. al. (2005). 100 IFRS Financial Ratios.Wiesbaden, Germany: Cometis AG.
Altman, E. I. dan Hotchkiss, E. (2006). Corporate Financial Distress and Bankcrupty 3rd Edition. New York: John Wiley and Son, Inc.
Andrade, G. dan Kaplan, S. N. (1998). How Costly Is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions That Became Distressed. The Journal of Finance, Vol. 53, No. 5. (Oct., 1998), pp. 1443-1493.
Asquith P., Gertner, R. dan Scharfstein, D. (1994). Anatomy of Financial Distress: An Examination of Junk-Bond Issuers. Quarterly Journal of Economics, 109: 1189-1222.
Bhunia, A., Uddin Khan, S. I. dan Mukhuti, S. (2011). Prediction of Financial Distress - A Case Study of Indian Companies. Asian Journal of Business Management,3(3), 210-218.
Blancher, N., et. al. (2013). Systemic Risk Monitoring (―SysMo‖) Toolkit—A User Guide. IMF Working Paper, WP/13/168.
Drehmann, M., et. al. (2010). Countercyclical capital buffers: exploring options. ((BIS) Working Papers No. 317).
Drehmann, M., Borio, C. dan Tsatsaronis, K. (2011). Anchoring countercyclical capital buffers: the role of credit aggregates. ((BIS) Working Papers No. 355).
Fitzpatrick. (2004). An Empirical Investigation of Dynamics of Financial Distress. A Dissertation Doctor of Philosophy, Faculty of the Graduate School of the State University of New York at Buffalo, USA.
Gapen, M. T., et. al. (2004). The Contingent Claims Approach to Corporate Vulnerability Analysis: Estimating Default Risk and Economy-Wide Risk Transfer.IMF Working Paper, WP/04/121.
Gray, D dan Malone, S.W. (2009). Macrofinancial Risk Analysis. England: John Wiley & Sons, Inc.
Ishikawa, A., et. al. (2012). The Financial Activity Index. (Bank of Japan Working Paper Series, No.12-E-4).
Ito, Y., et. al. (2014). New Financial Activity Indexes: Early Warning System for Financial Imbalances in Japan. (Bank of Japan Working Paper Series, No.14-E-7).
Jakubík, P. dan Teplý, P., (2011). The JT Index as an Indicator of Financial Stability of Corporate Sector. Prague Economic Papers, 2011(2), 157-176.
Bank Indonesia. (2009). Kajian Stabilitas Keuangan. Jakarta: Bank Indonesia.
Luciana Spica Almilia. (2004). Analisis Faktor-faktor yang Mempengaruhi Kondisi Financial Distress suatu Perusahaan yang Terdaftar di Bursa Efek Jakarta. Jurnal Riset Akuntansi Indonesia, Vol. 7. No. 1: 1-22.
Platt, H., dan Platt, M. B. (2002). Predicting Financial Distress. Journal of Financial Service Professionals, 56: 12-15.
Pranowo, K., et. al. (2010). Determinant of Corporate Financial Distress in an Emerging Market Economy: Empirical Evidence from the Indonesian Stock Exchange 2004-2008. International Research Journal of Finance and Economics, Issue 52.
Surjaningsih, N., Yumanita, D. dan Deriantino, D. (2014). Early Warning Indicator Risiko Likuiditas Perbankan. Bank Indonesia Working Paper No. 1.
Wiehle, U., et. al. (2005). 100 IFRS Financial Ratios.Wiesbaden, Germany: Cometis AG.
Published
2018-01-31
How to Cite
Abubakar, A., Astuti, R., & Oktapiani, R. (2018). Selection of Early Warning Indicator to Identify Distress in The Corporate Sector: Crisis Prevention Strengthening Efforts. Buletin Ekonomi Moneter Dan Perbankan, 20(3), 343-374. https://doi.org/10.21098/bemp.v20i3.857
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
