EFFECTS OF FINANCIAL RATIOS ON FINANCIAL DISTRESS: EVIDENCE FROM STATE-OWNED BANKS LISTED ON THE INDONESIA STOCK EXCHANGE

Abstract

This study analyzes the determination of financial ratio in predicting the financial distress by using Altman Z” Score as a proxy of financial distress. The data source used is secondary data from four state-owned Banks that listed on Indonesia Stock Exchange over 15 years from 2007 to 2021, totaling 240 samples. The process used is quantitative method with multiple linear regression. The empirical result of this study showed that the Current Ratio, Cash Ratio, Loan To Deposit Ratio (LDR), Return On Asset (ROA) and Capital Adequacy Ratio (CAR) are significant determinants of financial distress of the state-owned banks and can be used as an early warning system to prevent financial distress, on the other hand, debt to asset (DAR), debt to equity (DER) and return on equity (ROE) is insignificant determinants of financial distress of the stated-owned banks that listed on the Indonesia Stock Exchange. The results of this study are expected to help and provide information that can be used for banking companies to assist management in evaluating the results of its operations, especially in maintaining financial ratio. The findings can provide regulatory authorities in Indonesia with instruments to assist in detecting financial distress or corporate failure before they occur to minimize costs, and enriched the theoretical and empirical literatures with related studies on failure prediction.