Selection of Early Warning Indicator to Identify Distress in The Corporate Sector: Crisis Prevention Strengthening Efforts

  • Arlyana Abubakar Bank Indonesia
  • Rieska Indah Astuti Bank Indonesia
  • Rini Oktapiani Bank Indonesia
Keywords: early warning indicator, financial distress


This study aims to develop an Early Warning Indicator (EWI) that can provide
early 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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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.