Bankruptcy Prediction Model: An Industrial Study in Indonesian Publicly-Listed Firms During 1999-2010
RIBER: Review of Integrative Business & Economics Research, Vol. 3, Issue 1, March 2014, p. 13-41, ISSN # 2304-1013
28 Pages Posted: 17 Feb 2014 Last revised: 13 Dec 2019
Date Written: March 2014
It is a common understanding that bankruptcy is not a sudden occurrence for any organizations. Macro and micro economic studies have suggested numerous influential factors, which have substantial evidence toward firm’s performance (Bekeris, 2012) and survivability (Nehrebecka & Dzik, 2013). With a humble intention to enrich the available literatures, this study attempts to establish a corporate bankruptcy prediction model (Trigo & Costanzo, 2007) to minimize the chances of bankruptcy for Indonesian firms. Literatures have indicated various factors to be used as the foundation toward building the bankruptcy prediction models. Those factors include; (1) macroeconomic factors, which are frequently denoted by GDP, exchange rate, inflation and interest rates, and (2) the company's financial performance factors, which are commonly measured by financial ratios and cash flow ratios.
To obtain the corporate bankruptcy prediction model, it was necessary to test the prevailing factors used in this study. This study emphasizes on the publicly-listed firms in Bursa Efek Indonesia (BEI) during the period of 1999-2010. Relying on the purposive sampling method, this study covered a total of 63 publicly-listed companies in BEI, whereby 34 companies were financially sound, and 29 companies that have filed for bankruptcy. The sample analysis (60% of samples) was incorporated to establish the corporate bankruptcy prediction model. In addition, the sample validation (40% of samples) was used to test the degree of accuracy of the corporate bankruptcy prediction model.
The logistic regression results show that firm's financial performance factors influence the likelihood of bankruptcy, while macroeconomic factors did not seem to impact the company's likelihood toward bankruptcy. At the level of accuracy for predicting bankruptcy is approximately 94%, the prediction model is Ln (P/1-P) = -28.142 1.442 37.547 CR DAR - 88.911 CFROA. These results prescribed the importance of noting and safeguarding the company's financial performance, as well as considering the corporate bankruptcy prediction model to gauge the firm’s financial condition.
Keywords: bankruptcy prediction model, logistic regression, macroeconomics, financial performance, financial ratios, cash flow ratios
JEL Classification: A00, A10, B40, C10, C20, C30, C40, C50, C60, E60, G10, G30, G33
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