DETERMINANT OF FINANCIAL DISTRESS MANUFACTURING COMPANIES EVODENCE FROM INDONESIA

Abstract

Firm faced the financial distress when firms have situation are unable to meet their financial obligation as at when due. If management cannot manage its finances properly, the company will experience financial distress that toward going to bankruptcy. This study aims to analyze sales growth, operating capacity, and intellectual capital as determinants of financial distress among the Manufacturing firms listed in Indonesia Stock Exchange using Interest Coverage Ratio (ICR) to measure financial distress. This study used annual data of 129 firms for the period 2019-2012, so that it has the balance panel data with the total of 387 observations. The results show that sales growth has a positive and significant effect on financial distress. This indicates that increase growth of sales would lead to increase financial distress. However, the results of operating capacity and intellectual capital have a negative effect on financial distress. The negative coefficient implies that higher operating capacity and intellectual capacity lead to decreases firm financial distress.

Keywords: Sales Growth, Operating Capacity, Intellectual Capital, and Financial Distress