pISSN : 2301 – 8968

JEKT ♦ 14 [1] : 145-172 eISSN : 2303 – 0186

The Influence of Financial Indicators, Corporate Governance and Macroeconomic

Variables on Financial Distress

Made Reina Candradewi

Henny Rahyuda
Universitas Udayana

ABSTRACT
This study aims to analyzes the effect of financial indicators, corporate governance and
macroeconomic variables on financial distress of manufacturing companies listed in
Indonesian Stock Exchange (IDX) for the period 2016-2018. This research is expected to
provide solutions and insight for the companies in tackling financial distress. This
research employs quantitative approach. The sampling technique is purposive
sampling method and the final sample is 136 companies. This research uses descriptive
statistics and logistic regression analysis. The main findings of the research show that
liquidity ratio has a negative and significant effect on financial distress, leverage ratio
has a positive and significant effect on financial distress, activity ratio has a negative
and significant effect on financial distress and the size of the board of directors has a
negative and significant effect on financial distress. Companies must pay attention to
financial performance and corporate governance to prevent financial distress.
Keywords: financial indicators, corporate governance, macroeconomic, financial
distress
JEL classification: G2, G3, E4

INTRODUCTION difficulties and even bankruptcy.

Moreover, the manufacturing industry
The economy of a country is greatly
has a significant role in the Indonesian
affected by the movement of the business
economy. Based on data from the
world. A country can be stated to have a
Indonesian Central Statistics Agency
good economy, if there is an increase
(Badan Pusat Statistik - BPS), the
movement its business world. However,
manufacturing industry provides a
the country's economy is said to have
sizeable contribution to Indonesia's Gross
worsened when there is downturn in the
Domestic Product (GDP). In 2017, the
business world. This condition is shown if
manufacturing industry contributed IDR
many companies experiencing financial

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2,103.07 trillion to the Indonesian company's financial performance which

economy, or around 21.22% of Indonesia's can be measured by liquidity, leverage
GDP. and activity ratio. When a company has
good financial performance, the
The problem that occurs is that in 2018
possibility of financial distress will be
there were 33 manufacturing industry
lower. Previous research by Pulungan et
companies on the Indonesian Stock
al. (2017) stated that the company's
Exchange (IDX) that had negative Earning
liquidity level had a significant negative
Per Share (EPS). A company that has a
effect on financial distress. This finding is
negative EPS indicates that the company
supported by Widhiari and Merkusiwati
is experiencing financial distress or
(2015). However, different results were
financial difficulties. This is very
found by Agustini and Wirawati (2019)
important to consider because financial
who concluded that the liquidity ratio
distress is an early sign or signal of
had no effect on financial distress.
bankruptcy in the company. Financial
Pranowo et al. (2010) in their research
distress and the risk of bankruptcy
emphasized that leverage has a significant
experienced by companies in the
effect on financial distress experienced by
manufacturing industry will indirectly
companies. The results of this study were
reduce the condition of Indonesian
supported by Agustini and Wirawati
economy. Therefore, it requires an in-
(2019) who came to a similar conclusion.
depth analysis of what factors can
However, research by Widhiari and
influence financial distress that occurs in
Merkusiwati (2015) found different
manufacturing industrial companies on
results that leverage is not able to
the IDX.
influence the possibility of financial
Financial indicators, corporate
distress. Activity ratio, measured by total
governance and macroeconomic variables
assets turnover, was found to have a
are important factors that can affect the
significant effect on financial distress as
possibility of financial distress in a
stated in the previous research by Dewi
company. Financial indicators reflect a
and Dana (2017). Research by Agustini

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and Wirawati (2019) came to the same and Azoury (2013) and Bredart (2014)
conclusion. However, it is different from found empirical evidence that board size
the results of research by Kariani and has a negative and significant effect on
Budiasih (2017) which found that the financial distress. However, different
activity ratio has no effect on financial results were obtained in empirical
distress. research by Cinantya and Merkusiwati
(2015) which found that the size of the
Corporate governance is a system in a
board of directors had no effect on
company that regulates the relationship
financial distress. The research from
between shareholders, board of directors,
Deviacita (2012) concluded that
board of commissioners, managers,
managerial ownership has a significant
employees and all stakeholders in the
negative effect on financial distress. This
company. The implementation of good
result is contrary to research conducted
corporate governance could be employed
by Cinantya and Merkusiwati (2015)
as an action to prevent financial distress
which found evidence that managerial
(Bredart, 2014). Important indicators of
ownership has no effect on financial
corporate governance that need to be
distress.
considered are the proportion of
independent commissioners, board size External factors that are important to be
and managerial ownership. Empirical considered in influencing financial
research by Salloum and Azoury (2013) distress are macroeconomic variables that
found that board outsiders have a reflect the state of a country's economy,
significant negative effect on financial including inflation, exchange rates and
distress. However, it is different from the interest rates. Research by Rachmawati et
results of research by Cinantya and al. (2012) found that inflation and interest
Merkusiwati (2015) which found that the rates have a significant effect on financial
variable proportion of independent distress. Meanwhile, research by
commissioners has no effect on financial Darmawan (2017) found the opposite
difficulties. Previous research by Salloum result that inflation and interest rates have

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no effect on financial distress. Rohiman Financial distress can be experienced by

and Damayanti (2019) in their research every company, both small and large
found that exchange rates have a scale companies. Financial distress is a
significant effect on financial distress. situation when a company cannot meet or
However, research by Darmawan (2017) face difficulties in paying off financial
and Rachmawati et al. (2012) found obligations to creditors (Khaliq et al,
different results that the exchange rate 2014). In addition, Platt and Platt (2002)
had no effect on financial distress. define financial distress as a condition in
which the company's financial is
The difference results of previous
experiencing a decline, crisis or being
empirical research have created a research
unhealthy prior to bankruptcy or
gap for conducting in-depth analysis of
liquidation.
how financial indicators, corporate
governance and macroeconomic variables Financial indicators can be used as a basis
affect financial distress. There is hardly for predicting financial distress (Jiming
any research, that has analyzed the and Weiwei, 2011). Financial indicators
overall analysis by integrating these reflect the company's financial
factors, including liquidity ratio, leverage performance which can be measured
ratio, activity ratio, proportion of using financial ratio analysis including
independent commissioners, board size, liquidity ratio, leverage ratio, profitability
managerial ownership, inflation, ratio, activity ratio and market ratio
exchange rates and interest rates, which (Horne and Wachowicz, 2008; Al-Khatib
affect financial distress. The and Al-Horani, 2012). In the analysis of
implementation of this research is factors that affect financial distress, the
expected to help companies in Indonesia three most important financial indicators
to cope with financial distress, so that the are used, which are the liquidity ratio, the
companies can survive and contribute to leverage ratio and the activity ratio.
the Indonesian economy.
The liquidity ratio reflects the company's
Hypothesis Formulation ability to meet its short-term needs by

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using the company's current assets assets owned by the company (Brigham
(Horne and Wachowicz, 2008). Liquidity and Houston, 2015). Leverage ratio can be
can be measured using the current ratio measured using the debt to equity ratio
(CR) by dividing the company's current (DER) by dividing the level of debt by the
assets and current liabilities (Brigham and level of equity owned by the company.
Houston, 2015). The low level of the When a company has a high level of
company's liquidity ratio indicates the leverage, this means that the company has
company's inability to meet its short-term a high level of debt. Companies that have
needs. The high level of company a high level of debt in their capital
liquidity reflects that the company can structure will experience an increase in
fulfill its short-term obligations and is interest costs that must be borne, which
able to finance operational activities. A will cause financial distress (Hardwick
company is said to be liquid, when it has and Adams, 1999). In addition, Pranowo
sufficient cash. The high liquidity of a et al. (2010) found that leverage has a
company indicates that the company has significant effect on financial distress.
a good financial condition, so that the
Hypothesis 2: Leverage ratio has a
company could avoid financial distress
positive and significant effect on financial
from happening. Widhiari and
distress
Merkusiwati (2015) concluded that
Activity ratio is a financial ratio that
liquidity has a significant negative effect
measures the level of effectiveness of a
on financial distress. Pulungan et al.
company in using its assets. Activity ratio
(2017) also found that liquidity has a
can be measured using total assets
significant effect on financial distress.
turnover (TAT) by dividing the level of
Hypothesis 1: Liquidity ratio has a
sales by the company's total assets (Horne
negative and significant effect on financial
and Wachowicz, 2008). The high level of a
distress
company's TAT reflects that the company
The leverage ratio shows how much the has a bigger sales volume. If the sales
company uses loan funds to finance the volume of the company is large, the profit

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generated by the company will increase. implementing corporate governance is to

Increasing profit will certainly increase create added value for stakeholders.
the company's wealth, so that the Indicators of corporate governance that
company will avoid financial distress. need to be examined in relation to
Research by Dewi and Dana (2017) found financial distress are the proportion of
that the activity ratio as measured by TAT independent commissioners, size of the
has a significant effect on financial board of directors and managerial
distress. Similar research results were ownership.
obtained in empirical research from
The proportion of independent
Agustini and Wirawati (2019).
commissioners is the ratio between the
Hypothesis 3: Activity ratio has a negative number of members of independent
and significant effect on financial distress commissioners and commissioners from
within the company. When a company
Corporate governance is a series of
has a higher proportion of independent
relationships between shareholders, the
commissioners, the board of
board of directors, the board of
commissioners will be able to supervise
commissioners, management and other
and provide advice to management more
stakeholders (OECD, 2014). In other
effectively because independent
words, corporate governance is a system
commissioners work professionally
that regulates the relationship between
(Debby et al, 2014). The greater the
shareholders, the board of directors, the
number of independent commissioners in
board of commissioners, managers,
a company, the smaller the potential for
creditors, government, employees and all
financial distress to occur because
stakeholders in the company. The
company management has more
function of corporate governance is to
supervision from management. Research
spur the efficient use of company
by Salloum and Azoury (2013) found
resources where accountability is needed
empirical evidence that board outsiders
in managing these resources (Osuoha,
2013). In addition, the main objective of

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have a significant negative effect on management, which can be measured

financial distress. from the percentage of ordinary shares
owned by management who are actively
Hypothesis 4: The proportion of
involved in making company decisions.
independent commissioners has a
The theory of corporate governance by
negative and significant effect on financial
Jensen and Meckling (1976) states that
distress
managerial ownership is an important
Board size is an important factor in
issue in corporate governance theory. This
corporate governance. When a company
theory explains that the greater the
has a small number of members of the
proportion of managerial ownership in a
board of directors, it will trigger agency
company, the management will try to be
problems because the company's
more active in meeting the interests of
management ability to manage its
shareholders who are also themselves.
operations has decreased. The bigger size
Managerial ownership will be able to
of the board of directors will reduce the
reduce agency problems that arise in a
possibility of financial difficulties
company, so that the company will avoid
(Emiraldi, 2007). Therefore, it can be
financial distress problems. Research by
observed that a larger size of the board of
Deviacita (2012) found evidence that
directors will keep the company away
managerial ownership has a significant
from the tendency of financial distress
negative effect on financial distress.
(Bredart, 2014). Research by Salloum and
Hypothesis 6: Managerial ownership has
Azoury (2013) concluded that board size
a negative and significant effect on
has a significant negative effect on
financial distress
financial distress.
Macroeconomic variables are external
Hypothesis 5: Board size has a negative
factors that can affect financial distress.
and significant effect on financial distress
Macroeconomic variables are factors that
Managerial ownership is the proportion
cover broad economic conditions such as
of ordinary shares owned by
inflation, interest rates and exchange

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rates. Inflation is a tendency to increase materials. The weakening of the rupiah

the price level in general and currency will increase the costs that must
continuously (Friedman, 2007). When a be borne by the company, namely an
country has a high inflation rate, this will increase in production costs so that it has
push up raw material prices and increase an impact on decreasing the company's
operating costs. This situation will cause profitability (Darminto, 2010). This
the selling price of the company's goods condition will cause an increase in the
and cause a decrease in people's tendency of financial distress in the
purchasing power. When this happens, company. Rohiman and Damayanti (2019)
the company's sales will decrease and the found that exchange rates have a
company's profits will decrease so that significant effect on financial distress.
the tendency for financial distress to
Hypothesis 8: Exchange rates have a
increase. Thus, continuous inflation will
negative and significant effect on financial
increase the possibility of companies
distress
experiencing financial distress (Munthe,
The interest rate is the amount of interest
2008). Rachmawati et al. (2012) found that
paid per unit of time which is referred to
inflation has a significant effect on
as a percentage of the amount borrowed.
financial distress.
One must pay for the opportunity when
Hypothesis 7: Inflation has a positive and
borrowing money. Thus, the interest rate
significant effect on financial distress
is the cost incurred when borrowing
The exchange rate is the price of a money which is measured as a percentage
domestic currency in a foreign currency. of the money borrowed (Samuelson and
The exchange rate is an amount of money William, 2004). Case and Fair (2004) state
from a certain currency which can be that the interest rate is the annual interest
exchanged for units of the currency of payment on a loan expressed as a
another country. The rupiah exchange percentage of the loan. The amount is
rate will greatly affect the production equal to the amount of interest received
companies that rely on imported raw per year divided by the amount of the

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loan. The greater the interest expense commissioners, board size, managerial
borne by the company, the more likely it ownership, inflation, exchange rates and
is that a decline in profit will lead to interest rates on financial distress in
financial distress (Brigham and Houston, manufacturing industrial companies
2015). Rachmawati et al. (2012) found that listed on the IDX in 2016-2018.
interest rates have a significant effect on The dependent variable is the variable
financial distress. that is affected or that is the result of the
independent variable in the research
Hypothesis 9: Interest rates have a
model (Creswell, 2014). The dependent
positive and significant effect on financial
variable in this study is financial distress.
distress
Independent variables are variables that
RESEARCH METHODS
affect or cause changes in the dependent
This research uses quantitative methods. variable in the research model (Creswell,
Research with quantitative methods will 2014). The independent variables in this
test the relationship between variables research are liquidity, leverage, activity
which are measured numerically and ratio, proportion of independent
analyzed using statistical techniques commissioners, board size, managerial
(Saunders, 2016). This research is ownership, inflation, exchange rates and
conducted to determine the effect of interest rates. The research design in this
liquidity, leverage, activity ratio, study can be seen in Figure 1.
proportion of independent

Figure 1: Research Design

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X1 : Liquidity Ratio H1 (-)

X2 : Leverage Ratio
H2 (+)

X3 : Activity Ratio H3 (-)

X4 : Proportion of Independent H4 (-)

Commissioners

X5 : Board Size Y : Financial Distress

H5 (-)

X6 : Managerial Ownership
H6 (-)

X7 : Inflation H7 (+)

H8 (-)
X8 : Exchange Rates

X9 : Interest Rates H9 (+)

This research was conducted in proportion of independent

Indonesia, namely manufacturing commissioners, board size, managerial
companies listed on the IDX for the ownership, and financial distress can be
period 2016 to 2018. This location was obtained from the annual financial
chosen because the IDX is the only stock reports of each company published on
exchange in Indonesia and all the IDX website and data on inflation,
companies listed in Indonesia through exchange rates and interest rates can be
the Indonesia Stock Exchange. obtained through BPS and the Bank
Indonesia website.
All data in this study are quantitative
data. In addition, this study uses This study aims to determine the effect
secondary data, where all the data such of financial indicators, corporate
as liquidity, leverage, activity ratio, governance and macroeconomic

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variables on financial distress in 2. Leverage Ratio (X2) is measured

manufacturing industrial companies using the debt to equity ratio
listed on the IDX. Thus, the population (DER), which is by dividing debt
in this study were all companies listed with equity in manufacturing
in the manufacturing industry on the companies on the IDX from 2016
IDX in 2018. The sampling technique in to 2018. The scale of this data is
this study was the purposive sampling the ratio and the unit is times.
method. Purposive sampling method is 3. Activity Ratio (X3) is measured
a sampling technique based on the using the ratio of total assets
criteria determined by the researcher. turnover (TAT) by dividing the
The sampling criteria used in this study level of sales by the total assets of
were manufacturing companies that manufacturing companies on the
were always listed on the IDX for the IDX from 2016 to 2018. The scale
period 2016 to 2018. There were 136 of this data is the ratio and the
manufacturing companies that met the unit is times.
sample criteria. 4. Proportion of independent
commissioners (X4) is the
The following is the operational
proportion of the number of
definition of all variables used in this
members of independent
study:
commissioners compared to
1. Liquidity Ratio (X1) is measured
commissioners from within the
using the current ratio (CR),
company. This proportion is
which is calculated by dividing
measured by dividing the
current assets with current
number of company independent
liabilities in manufacturing
commissioners and the total
companies on the IDX from 2016
number of commissioners in
to 2018. The scale of this data is
manufacturing companies on the
the ratio and the unit is a
IDX from 2016 to 2018. This data
percentage.

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scale is ratio data and the unit is 8. Exchange rates (X8), measured by
times. calculating the middle value
5. Board size (X5) is the total between the rupiah selling and
number of members of the board buying rates published by Bank
of directors in manufacturing Indonesia for the period 2016 -
companies on the IDX from 2016 2018.
to 2018. The scale of this data is 9. Interest rates (X9), measured by
nominal and the units are people. the average interest rate
6. Managerial ownership (X6) is the determined by Bank Indonesia
proportion of the number of each year, obtained from Bank
shares owned by the board of Indonesia publications for the
directors and commissioners in period 2016 - 2018.
the company compared to the 10. Financial Distress (Y) is a
total number of shares in the financial difficulty in
company. This proportion is manufacturing companies on the
measured by dividing the IDX in 2016 - 2018, which is
number of shares owned by the measured by the companies that
board of directors and have negative EPS in one
commissioners with the total reporting period. This variabel is
number of shares in a dummy variable. If a company
manufacturing companies on the experiencing financial distress is
IDX from 2016 to 2018. This data given a score of 1, and a company
scale is ratio data and the unit is a that does not experience financial
percentage. distress is given a score of 0.
7. Inflation (X7), measured by the
The data analysis technique used in this
average annual inflation obtained
research is descriptive analysis and
from the publication of Bank
regression analysis using the SPSS
Indonesia for the period 2016 - program. The first data analysis
2018.
conducted in this study was descriptive
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statistics. Descriptive statistics is a data study, the dependent variable is a

analysis method used to characterize the dummy variable and has more than one
data that has been collected (Sugiyono, independent variable.
2017). Descriptive statistics in this study
will calculate the average, standard RESULT AND DISCUSSION

deviation, and percentage of the sample Descriptive statistical analysis was

data for all variables with the ratio data. conducted to provide an overview or

The second data analysis conducted in description of the research variables

this study is inferential analysis. consisting of financial distress (Y),

Inferential analysis is used to test the liquidity ratio (X1), leverage ratio (X2),

hypotheses formulated in this study. activity ratio (X3), proportion of

The inferential analysis technique used independent commissioners (X4), board

in this research is logistic regression size (X5), managerial ownership (X6),

analysis through the Statistical Package inflation (X7), exchange rates (X8) and

for Social Science (SPSS) program. The interest rates (X9) through the average

test is carried out using logistic (mean) value, maximum value,

regression analysis because in this minimum value and standard deviation.

Table 1: Descriptive Statistics of Research Variables

N Minimum Maximum Mean Standard Deviation
Y 408 .00 1.00 .2034 .40304
X1 408 10.64 792.50 212.9656 162.61837
X2 408 .08 17.91 1.4514 2.03356
X3 408 .01 4.80 .8837 .56472
X4 408 .00 .75 .3779 .12249
X5 408 2.00 16.00 4.9902 2.22227
X6 408 .00 89.44 5.8490 14.06799
X7 408 3.20 3.81 3.5133 .24962
X8 408 13329.00 14268.00 13664.3333 428.25741
X9 408 4.60 5.30 5.0000 .29475
Source: secondary data processed

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Table 2: Hosmer and Lemeshow Test Results

Step Chi-square df Sig.
1 2.413 8 .966
Source: secondary data processed

Table 3: Comparison of the Initial -2LL Value and the Final -2LL Value
-2LL initial (Block Number = 0) 412.180
-2LL final (Block Number = 1) 327.446
Source: secondary data processed

Table 4: Results of the Determination Coefficient Test

Cox & Snell R Nagelkerke R
Step -2 Log likelihood
Square Square
1 327.425 .188 .295
Source: secondary data processed

Table 5: Classification Matrix

Predicted
Y
Percentage
No Financial Financial
Correct
Observed Distress Distress
Step 1 Y No Financial Distress 316 9 97.2
Financial Distress 59 24 28.9
Overall Percentage 83.3
Source: secondary data processed

Table 6: Logistic Regression Analysis Results

B S.E. Wald df Sig. Exp(B)

Step 1a X1 -.006 .002 13.217 1 .000 .994
X2 .173 .076 5.196 1 .023 1.189
X3 -1.412 .351 16.209 1 .000 .244
X4 -1.586 1.110 2.041 1 .153 .205
X5 -.224 .076 8.765 1 .003 .799
X6 .008 .009 .718 1 .397 1.008
X7 .568 2.891 .039 1 .844 1.765
X8 .000 .001 .007 1 .932 1.000
X9 -.397 1.221 .106 1 .745 .672

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Constant 3.679 34.936 .011 1 .916 39.595

Source: secondary data processed

Table 1 shows that the amount of data The leverage ratio variable (X2) has a
used in this study amounted to 408 data minimum value of 0.08, namely in the
points obtained from a total sample of Sido Muncul Tbk Herbal and
136 companies during the 2016-2018 Pharmaceutical Industry company in
period. The financial distress variable 2016. The maximum value is 17.91,
(Y) is a dummy variable. The value of 1 namely the company Apac Citra
is given to manufacturing companies Centertex Tbk in 2018. These results also
listed on the IDX for the 2016-2018 show that the average value of leverage
period that experienced financial ratio is 1.45 and the standard deviation
distress, while the value of 0 is for is 2.03.
manufacturing companies listed on the
The activity ratio variable (X3) has a
IDX for the 2016-2018 period that did
minimum value of 0.01, namely the Inti
not experience financial distress.
Keramik Alam Asri Industri Tbk
Overall, the average value of the
company in 2018 and a maximum value
financial distress variable is 0.2034 with
of 4.80, namely the Beton Jaya
a standard deviation of 0.40304.
Manunggal Tbk company in 2017. These
The variable liquidity ratio (X1) has a results also indicate that the average
minimum value of 10.64%, namely the value of activity ratio is 0.88 and the
Asia Pacific Fibers Tbk company in standard deviation is 0.56.
2016. and a maximum value of 792.50%,
The variable proportion of independent
namely the Multi Prima Sejahtera Tbk
commissioners (X4) has a minimum
company in 2018. These results also
value of 0, namely the 2016 Waskita
show that the average value of the
Beton Precast Tbk company and a
liquidity ratio is 212.96 and the
maximum value of 0.75, namely the
standard deviation is 162.61.
Bentoel International Investama Tbk

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company in 2016. These results also average value of the inflation variable is
show that the average value of 3.51 and the standard deviation is 0, 24.
proportion of independent
The rupiah exchange rate variable (X8)
commissioner is 0.37 and the standard
has a minimum value of 13,329, that is
deviation is 0.12.
in 2016. Then the maximum value is
The variable of the size of the board of 14,268, that is in 2018. These results also
directors (X5) has a minimum value of 2, show that the average value of the
namely in the company Inti Keramik rupiah exchange rate variable is 13,664
Alam Asri Industri Tbk in 2016 and a and the standard deviation is 428.25.
maximum value of 16 is the company
The interest rate variable (X9) has a
Mandom Indonesia Tbk in 2016. These
minimum value of 4.60, that is in 2017.
results also show that the average value
Then the maximum value is 5.30, that is
of the board size is 4.99 and the
in 2016. The results also show that the
standard deviation is 2.22.
average value of the interest rate
The managerial ownership variable (X6) variable is 5 and the standard deviation
has a minimum value of 0, which is a is 0, 29.
total of 225 data points and the
The feasibility of the regression model
maximum value of 89.44, namely the
was assessed using the Hosmer and
Beton Jaya Manunggal Tbk company in
Lemeshow test. The test results can be
2017. These results also show that the
seen in Table 2. Table 2 shows that the
average value of the managerial
value of the Chi-square is 2.413 with a
ownership variable is 5.84 and the
significance value of 0.966. Based on the
standard deviation is 14.06.
test results, the significance value is
The inflation variable (X7) has a greater than 0.05, so it can be concluded
minimum value of 3.20, that is in 2018. that the model is able to predict the
Then the maximum value is 3.81, that is observation value or the model can be
in 2017. The results also show that the accepted because it fits the actual data.

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Testing to assess the overall model can financial distress. The test results are
be done by comparing the value of -2 presented in Table 5. Based on the
Log Likelihood (LL) at block number = 0 results of the classification matrix test in
with the value -2 Log Likelihood (LL) at Table 5, the predictive power of the
block number = 1. The test results can be regression model to predict the
seen in Table 3. In Table 3 it can be possibility that the company will not
observed that the initial -2LL value is experience financial distress is 97.2%.
412.180 and the final -2LL value has This value shows that from 425 total
decreased to 327.446. The decrease in observations that do not experience
the -2LL value indicates that the financial distress, there are 316 total
regression model being tested is good, observations that are predicted not to
meaning that the hypothesized model is experience financial distress, while 9
fit with the data. total observations are predicted to
experience financial distress. The
The coefficient of determination can be
prediction strength of the possibility
assessed from the value of the
that the company will experience
Nagelkerke R Square. The test results
financial distress is 28.9%. This value
are presented in Table 4. Table 4 shows
indicates that out of 83 total
that the Nagelkerke R Square value is
observations that experience financial
0.295. This value means that the
distress, 59 total observations are
variability of the dependent variable
predicted not to experience financial
which can be explained by the
distress, while 24 total observations are
independent variable is 29.5%, while the
predicted to experience financial
remaining 70.5% is explained by other
distress.
variables outside the research model or
which are not included in this study. Logistic regression analysis using the
SPSS program was carried out in this
The classification matrix shows the
study to analyze how the effect of
predictive power of the regression
liquidity ratio, leverage ratio, activity
model to calculate the likelihood of

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ratio, proportion of independent the company's ability to meet its short-

commissioners, board size, managerial term needs by using current assets
ownership, inflation, exchange rates and owned by the company. The low level of
interest rates on financial distress in the company's liquidity ratio shows the
manufacturing companies on the IDX company's inability to meet its short-
for the period 2016 - 2018. The results of term needs. The high level of company
logistic regression analysis for testing liquidity reflects that the company can
the relationship between variables in fulfill its short-term obligations and is
this study can be seen in Table 6. able to finance operational activities.
The high liquidity of a company
The results of the analysis show that the
indicates that the company has a good
liquidity ratio variable has a negative
financial condition, so that the company
regression coefficient of -0.006 with
could avoid financial distress from
p<0.05. The negative direction indicates
happening. The results of this study
that the higher the level of a company's
theoretically support that the liquidity
liquidity ratio, the company's financial
ratio and financial distress have a
distress tends to decrease. The results of
negative relationship. These findings
this study support the first hypothesis
also support the results of research
(H1) which states that the liquidity ratio
conducted by Widhiari and
has a significant negative effect on
Merkusiwati (2015) and Pulungan et al.
financial distress. This means that an
(2017)
increase or decrease in the liquidity ratio
influences the increase or decrease in The results of the analysis show that the
financial distress in manufacturing leverage ratio variable has a positive
companies listed on the IDX in 2016- regression coefficient of 0.173 with
2018. p<0.05. The positive direction shows
that the higher the level of a company's
One of the measurements of financial
leverage ratio, the company's financial
performance is seen through the
distress tends to increase. The results of
liquidity ratio. Liquidity ratio reflects

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 The Influence of Financial Indicators, Corporate Governance and ….Made Reina Candradewi, Henny Rahyuda

this study support the second regression coefficient of -1.412 with

hypothesis (H2) which states that the p<0.05. The negative direction shows
leverage ratio has a significant positive that the higher the level of a company's
effect on financial distress. This means activity ratio, the company's financial
that an increase or decrease in the distress tends to decrease. The results of
leverage ratio influences the increase or this study support the third hypothesis
decrease in financial distress in (H3) which states that the activity ratio
manufacturing companies listed on the has a significant negative effect on
IDX in 2016-2018. financial distress. This means that an
increase or decrease in activity ratio
Another important financial
influences the increase or decrease in
performance is leverage. Leverage ratio
financial distress in manufacturing
shows how much the company uses
companies listed on the IDX in 2016-
loan funds to finance assets owned by
2018.
the company. Companies that have a
high level of leverage reflect that the Activity ratio is a financial ratio that
company has a high level of debt. The measures the level of effectiveness of a
large proportion of the use of debt in the company in using its assets. Activity
company will cause an increase in ratio can be measured using total assets
interest costs that must be borne so that turnover (TAT) by dividing the level of
it will cause financial distress to the sales by the company's total assets.
company. The results of this study When a company has a high TAT level,
theoretically support that leverage and the company has a bigger sales volume.
financial distress have a positive The large sales volume of the company
relationship. The findings in this study will increase the profit generated by the
also support the results of research company. Increasing profit will
conducted by Pranowo et al. (2010). certainly increase the company's wealth,
so that the company could avoid
The analysis result shows that the
financial distress. The results of this
activity ratio variable has a negative

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study theoretically support that the of commissioners of a company will be

activity ratio and financial distress have able to supervise better and provide
a negative relationship. The findings in advice to management more effectively,
this study also support the results of when it has a higher proportion of
research conducted by Dewi and Dana independent commissioners. Therefore,
(2017). the higher the proportion of
independent commissioners, the smaller
The analysis result shows that the
the tendency for financial distress to
variable proportion of independent
occur in a company. However, in this
commissioners has a negative regression
study, the results show that the
coefficient of -1.586 with p>0.05. This
proportion of independent
shows that the proportion of
commissioners has not been able to have
independent commissioners does not
a real effect on financial distress. This is
have a significant effect on financial
most likely due to other factors that
distress in manufacturing companies
have a greater influence on financial
listed on the IDX in 2016-2018. This
distress, such as liquidity, leverage,
result does not support the fourth
activity ratio and board size. The results
hypothesis (H4) which states that the
of this study do not support the results
proportion of independent
of previous studies by Salloum and
commissioners has a significant
Azoury (2013).
negative effect on financial distress. The
proportion of independent The analysis results show that the
commissioners was found to have a variable board size has a negative
negative, but not significant, effect on regression coefficient of -0.224 with
financial distress. p<0.05. The negative direction shows
that the higher the size of the board of
The implementation of good corporate
directors of a company, the company's
governance can be seen from the
financial distress tends to decrease. The
proportion of independent
results of this study support the fifth
commissioners in a company. The board

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 The Influence of Financial Indicators, Corporate Governance and ….Made Reina Candradewi, Henny Rahyuda

hypothesis (H5) which states that board The analysis results show that the
size has a significant negative effect on managerial ownership variable has a
financial distress. This means that an positive regression coefficient of 0.008
increase or decrease in the board size with p>0.05. This shows that managerial
influences the increase or decrease in ownership does not significantly affect
financial distress in manufacturing financial distress in manufacturing
companies listed on the IDX in 2016- companies listed on the IDX in 2016-
2018. 2018. This result does not support the
sixth hypothesis (H6) which states that
The board of directors is part of the
managerial ownership has a significant
company who authorize and fully
negative effect on financial distress.
responsible for managing the company
Managerial ownership was found to
for the benefit of the company. The size
have a positive, but insignificant, effect
of the board of directors that is larger in
on financial distress.
a company, will increase the ability of
company management in managing its Theoretically and based on the results of
operations. In addition, the size of the previous research, a hypothesis has
board of directors in a company also been formulated in this study that
plays role in reducing agency problems. managerial ownership has a negative
Therefore, the size of the board of and significant effect on financial
directors has an important effect in distress. However, the results of
reducing the possibility of financial research conducted on manufacturing
difficulties. The results of this study companies listed on the IDX in 2016 -
theoretically support that board size and 2018 show that the higher the level of
financial distress have a negative managerial ownership of the company,
relationship. The findings in this study the more likely the company will
also support the results of research experience financial distress. This is
conducted by Salloum and Azoury most likely because most companies do
(2013). not implement managerial ownership

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programs. From 136 companies, only 61 selling price of goods and the
companies implemented managerial company's sales level will decrease. This
ownership programs. The results of this condition will cause company profits to
study found a positive and insignificant decrease and the tendency for financial
relationship between managerial distress to be even greater. However,
ownership and financial distress. The the insignificant results in this study do
results of this study do not support the not support previous research by
results of previous studies by Deviacita Munthe (2008) which proves that
(2012). inflation is an important factor affecting
financial distress. This may occur
The analysis result shows that the
because inflation is not a strong driving
inflation variable has a positive
factor in influencing the occurrence of
regression coefficient of 0.568 with
financial distress in manufacturing
p>0.05. This shows that inflation does
companies on the IDX.
not have a significant effect on financial
distress in manufacturing companies The analysis result shows that the
listed on the IDX in 2016-2018. These exchange rate variable has a positive
results do not support the seventh regression coefficient of 0.000 with
hypothesis (H7) which states that p>0.05. This shows that the exchange
inflation has a significant positive effect rate does not significantly influence
on financial distress. Inflation was financial distress in manufacturing
found to have a positive, but companies listed on the IDX in 2016-
insignificant, effect on financial distress. 2018. This result does not support the
eighth hypothesis (H8) which states that
A positive sign on the inflation
exchange rates have a significant
regression coefficient indicates that
positive effect on financial distress.
when the state of inflation increases, the
Exchange rates were found to have a
tendency for financial distress will
positive, but insignificant, effect on
increase. The higher the level of
financial distress.
inflation in a country, the higher the

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 The Influence of Financial Indicators, Corporate Governance and ….Made Reina Candradewi, Henny Rahyuda

The exchange rate is the price of the interest rates have a significant positive
domestic currency in foreign currencies. effect on financial distress. Interest rates
The exchange rate is very important for were found to have a negative, but
companies whose production relies on insignificant, effect on financial distress.
imported raw materials. The weakening
The interest rate is simply the cost
of the rupiah exchange rate will increase
incurred when borrowing money which
the costs that must be borne by
is measured in percentage of the money
companies. This will increase the
borrowed. The higher the interest rate,
possibility of financial distress in the
the greater the interest expense borne by
company. However, this study found
the company and increases the
that the exchange rate had a positive,
likelihood of financial distress.
but insignificant, effect on financial
However, this study found that interest
distress. The results of this study
rates have a negative and insignificant
contradict research by Darminto (2010).
effect on financial distress. This may
This is probably due to other factors that
occur because an increase in interest
have a greater influence on financial
rates will not necessarily increase
distress, such as financial indicators and
financial distress if the company has a
corporate governance which are internal
good leverage ratio. In addition, interest
factors.
rates in this study do not have a major
The analysis result shows that the effect on financial distress in
interest rate variable has a negative manufacturing companies on the IDX.
regression coefficient of -0.397 with
CONCLUSION
p>0.05. This shows that interest rates do
Several conclusions can be drawn from
not have a significant effect on financial
the results of data analysis and
distress in manufacturing companies
discussion. First, this study finds that
listed on the IDX in 2016-2018. This
the factors that most influence financial
result does not support the third
distress in manufacturing industrial
hypothesis (H9) which states that
companies listed on the Indonesia Stock

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Exchange (BEI) in 2016-2018 are addition, it is also important for

liquidity, leverage, activity ratio and companies to consider the board size,
board size. While the other six factors, because increasing the size of the board
which are the proportion of of directors in the company is proven to
independent commissioners, managerial be able to prevent financial distress. In
ownership, inflation, exchange rates and formulating company policies and
interest rates do not have a significant strategies, it is very important for
effect on financial distress. Liquidity company management to pay attention
ratio has a negative and significant about the steps in improving financial
effect on financial distress with a performance and improving corporate
significance level of 1%. Leverage ratio governance so that the possibility of
has a positive and significant effect on financial distress can be minimized. For
financial distress with a significance the future research, it is important to
level of 5%. Activity ratio has a negative pay attention to other internal factors
and significant effect on financial such as market ratios, growth, company
distress with a significance level of 1%. size and other external factors such as
The board size has a negative and commodity prices, taxes and
significant effect on financial distress government policies in influencing
with a significance level of 1%. financial distress which have not been
The results of the study provide advice examined in this study.
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