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5609 10912 1 SM
5609 10912 1 SM
ABSTRACT
Thegoal of this study was to testwhetherliquidity, financial leverage, profitability, and activity able
to predictfinancial distress in the coal mining sector of Indonesia companies listed in the Indonesia Stock
Exchange.Explanatory research is the nature of this research. Secondary data was used and obtained
through review of literature including articles, journals and published financial reports and accounts. The
study used several financial ratios in financial reports of groups of financially distressed companies and
actively sound companies in Indonesia period 2014-2017 with the goal to determine the most significant and
reliable ratiosfor predicting financial distress. The sampling technique used purposive sampling and the
research instruments were tested using the Goodness of Fit Test, and Wald Statistic Test. The hypothesis
extracted withBinary Logistic Regression Model. Like in some previous studies the companies were stated as
distressed if the company has negative net income for 2 consecutive years. Results of the data analysis from
Binary Logistic Regression confirmed that financial leverage, profitability, and activity of the company have
a significant effect partially to financial distress. From the wald statistic test results,activitywas found to be
the bestratio for determiningfinancial distress. The results from this study can be applied to take corrective
actionwhen necessary to minimize company failures. Investors and creditors will also be able avoid placing
their resources in financially distressed companies unconsciously.
Keywords: liquidity, financial leverage, profitability,activity, financial distress
Introduction 2014-2017 12 companies from Indonesia
Stock Exchange have been delisted, and 2 of
Company establishment has a goal of the 12 delisted companies comes from coal
profit maximization.Company must obtain mining sector.
profit, increase sales, and increase the
company’s net worth in order to reach it. Fierce competition plus sluggish
Nowadays, market becomes more volatile, economic growth on the world during 2014-
and uncertain. Customers preferences rapidly 2016 especially in export destination country
change and they are very hard to loyal. for instance China, Europe, and India with
Competitors also sell similar product with the highest demand for coal create negative
different type and uniqueness which makes impact to coal mining indstry. Companies
competition tougher. At the same time, should understand their intrinsic value
company also does not want to lose market especially during economic uncertainties.
share which later will result in negative net Many factors mentioned above can cause this
operating income, and negative cash flow. value to go down. That is why, companies
Thus, the possibilities for company to need to detect potential problem that might
maintain its sustainability become more occur in future. On the other side, this
difficult. Mining sector becomes important situation makes investors and creditors
pillar for economic development in evaluate their investment on coal mining
Indonesia. This sector is never absent on top industry whether it is still profitable or not.
5 GDP contributor each year. Somehow,
since 2011 until 2016, this sector is The coal mining company should be
experiencing a decline. aware of the challenge in future, especially
the possibility of controversial policy energy
Low coal price and there is still no from the Chinese and India’s Government.
sign of increasing demand from China, India, The Government of China issued to continue
and South Korea become the main reason. its reduction in domestic coal production
Indonesia as one of the richest mineral and program and domestic coal price control
ore production also gets this strong impact. program. Coal import to China will also be
All minerals and ores prices are depending on minimzed in order to protect domestic coal
market responses which make its price very producers.The same policy is also
is sensitive towards global demand and implemented by the Government of India
supply. Coal prices remained under pressure which encourages the increase of domestic
throughout 2014 due to continuous global coal consumption and reduces coal import
oversupply. Whereas in Indonesia, debt gradually. This situation may put company in
servicing problems resulted in increased trouble.
production from many domestic suppliers.
Financial distress occurs because the Financial leverage become the extent
company cannot maintain the financial to which a company uses financial leverage
performance stems from a failure can be measured by analyzing a company’s
inpromoting the product made which causes debt structure and profit pattern (Friedlob &
the decline in sales so that thedecreased Welton, 2008:171).Financial leverage
revenue from less sales allows the company specifically measure financial vulnerability.
to experience operationallosses and net loss This can make company have greater risk
for the year running (Rayenda, 2007). The profile than unlevered equity. A firm
magnitude of financial distress costs are vary weakened by too much leverage have higher
in each industry. For example, firms, in business risk, and company shall pay more
mining company, which depend largely from interest rates on borrowed funds (Friedlob &
human capital and machinery are likely to Welton, 2008:171). This situation makes firm
incur higher risk of financial distress highly volatile and its capital expenditure is
especially on high- levered firms. unpredictable (Palepu & Healy, 2008:213).
-
0.0 0.0 4.0 0.0 0.90
Based on table 4.12 Nagelkerke’s R ROA 96 47 69 1 44 9
Square value is resulted from the logistic
regression model with independent variables 0.0 0.0 4.0 0.0 0.99
is 0.535. The percentage of independant DER 06 03 76 1 43 4
variables which can explain the dependant
-
variable is 53.5%. Meanwhile, other 0.0 0.0 6.1 0.0 0.97
variables aside from this research financial TAT 23 09 01 1 14 7
ratio gave 46.5% toward financial distress
prediction. This number proves the 4 3.5 1.3 7.1 0.0 34.7
independent variables namely Current Ratio, Constant 48 22 99 1 07 41
Return on Asset, Debt to Equity, and Total
Asset Turnover.
Based on table 4.14 the formed regression lowersthe chances of financial distress
will increase. The significance value is
model is: lower than 0.05 (0.044<0.05) which can
be concluded that this variable has
𝐹𝐷 significant effect toward financial
𝐿𝑛 = 𝐷𝐼𝑆𝑇𝑅𝐸𝑆𝑆𝐸𝐷𝑖
1 − 𝐹𝐷 distress in coal mining companies.
Therefore, H3 is accepted.The results is
= 3,548 – 0,004 CR supporting research from Alfikri (2017).
d. For activityhyphothesis test which
+ 0,006 DER − 0,096 ROA proxied with total asset turnover, the
value of beta corellationis -0.023 with
− 0,023 STA significance value (p) of 0.014. The
negative relationship reflect the lower
Result and Discussion operating capacity (total asset turnover)
will enhance the possibilities for coal
a. The Hyphothesis Test above shows mining companies to enter financial
liquidity which proxied with current distress. The significance value is lower
ratio has beta corelation of -0.004 with than 0.05 (0.014<0.05) which shows the
significance value (p) of 0.242. The Total Asset Turnover has significant
negative relationship and the effect toward financial distress.
significance value is higher than 0.05 Therefore, H4 is accepted. The results
(0.242>0.05) which means there is no is agreed with Widhiari,and Merkusiwati
significant effect from Current Ratio (2015) research, meanwhile the results
toward financial distress. Therefore, H1 of this research reject Kusumawardana
is rejected.The results is supporting (2013) which stated activity cannot
Kusumawardana’s (2013), and Alfikri’s trigger financial distress.
(2017) research. Meanwhile, the results
is contrasting Widhiari,and Merkusiwati Conclusion and Recommendation
(2015) which stated liquidity can affect 5.1 Conclusion
financial distress. This research was conducted to
b. For financial leveragehyphothesis test point out which variables have influence
which proxied with debt to equity ratio, on Financial Distress, and determine
the value of beta correlation is 0.006 dominant independant variable. In this
with significance value of 0.043. The research the independent variables used
positive effect shows if company owns are the Current Ratio, Return On Assets,
high debt equity ratio, the company will Debt to Equity, and Total Asset Turnover
likely enter financial distress. The variables on Financial Distress. Based
significance value below 0.05 from research discussion, the following
(0.043<0.05)means that there is conclusions can be drawn
significant result from Debt to Equity 1. Regarding the research finding
ratio test toward financial distress. towards coal mining sector
Therefore, H2 is accepted.The results is company listed on Indonesia
rejecting research from Widhiari,and Stock Exchange, there are 6
Merkusiwati (2015) which stated companies from 14 observed
financial leverage is not significant companies who enter financial
toward financial distress, on the other distress based on 2 years
side the result support research from consecutive of negative net
Kusumawardana (2013), and Alfikri income and 8 healthy company
(2017). with classifiaction prediction of
c. TheHyphothesis Test results show 70% with classification for
profitability which proxied with return financial distress equal 66.7%
on asset has beta corelation of -0.096 and for healthy company is 86%.
with significantce value of 0.044. Therefore, financial distress
Negative relationship becomes a proof prediction model for this
when the value of return on asset research with financial ratio has
high accuracy and is able to Bibliography
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