Figure - uploaded by Obsa Teferi Erena
Content may be subject to copyright.
Source publication
The issue of financial distress has received much attention of scholars because it harms firm financial and operational systems which could lead to insolvency. The objective of this study is to examine the determinants of financial distress in Ethiopian insurance companies. A panel dataset was obtained from 11 insurance companies which range from 2...
Context in source publication
Context 1
... ensure whether the data suit the basic assumptions of the classical linear regression model, the following tests have been conducted: heteroskedasticity test, multicollinearity test, autocorrelation test, normality test, model specification or Ramsey test, the Hausman specification test and Breusch-Pagan-Lagrange multiplier. Each of them are discussed below in detail ( Table 3). ...Similar publications
This study aims to analyze the effect of financial ratios and macroeconomic factors on financial distress in trade, service and investment sector companies during the 2018-2021 period. The sampling method used a purposive sampling technique with a total sample of 58 companies. Testing was carried out using E-Views using the panel data regression an...
Citations
... This reflects the cost of delivering insurance coverage. A higher combined ratio indicates a reduced ability to make expense payments, which can be indicative of financial distress (Kebede et al., 2024;Rausch & Wende, 2014;Yonas, 2001). ...
Introduction/Main Objectives: The emerging markets’ economic growth relies on stable insurance sectors, which mitigate risk, maintain liquidity, and manage profitability for sustainable growth. This paper aims to examine the financial well-being prediction model using logit regression for Indonesian life and general insurance companies one year and two years before a failure event. Background Problems: The rise of insurance failures erodes people's trust, especially in Indonesia where financial literacy is still an ongoing issue. Novelty: Numerous studies examine the methodology for predicting insurance failure, but some of these procedures have statistical limitations or do not address the unique issue in the emerging markets’ setting. Research Methods: This study employs logistic regression as its methodology and focuses on the life and general insurers operating in Indonesia between 2012 and 2020, using publicly available data. Finding/Results: This study finds the financial well-being of general insurance companies is dependent on their investment performance, profitability, liquidity, change in asset mix, premiums, and surplus growth, leverage, the inflation rate, and change in money reserves. While firm size, the operating margin, premium growth, liquidity change in the asset mix, the combined ratio of loss and expense ratios, surplus growth, and leverage are the key leading indicators of life insurers’ insolvency. Conclusion: Firms with poor investment performance, low premium growth, and extreme levels of leverage are more likely to be insolvent. This study suggests that local authorities should regulate insurance companies' investment strategies, moderate their asset mix changes, and implement sound risk management systems to mitigate performance fluctuations.
... Liquidity is also critical; low liquidity increases vulnerability to going-concern audit opinions [1]. A low Z-score combined with declining liquidity signals a higher risk of failure, increasing the likelihood of a going-concern opinion [33,45]. ...
... However, board gender diversity does not significantly influence financial distress, possibly due to decision-making complexities within diverse boards [26] contrasting with studies highlighting its protective effect [35][36][37][38]. Liquidity (X2), by contrast, significantly increases financial distress, confirming that lower liquidity levels are reliable indicators of deteriorating financial health [45,65]. ...
This study aims to examine the effect of board gender diversity and liquidity on going concern audit opinions, with financial distress serving as a mediating variable. Using Partial Least Squares Structural Equation Modeling (PLS-SEM), the study analyzes panel data from 84 observations of non-financial Indonesian SOEs between 2020 and 2023. The findings reveal that both board gender diversity and liquidity significantly influence going concern audit opinions, with financial distress mediating the effect of liquidity but not gender diversity. Liquidity also significantly impacts financial distress. These results underscore the importance of governance and financial indicators in shaping audit judgments. The study contributes to fraud deterrence literature by linking strong liquidity and diverse boards to reduced audit risk. Practical implications include encouraging regulators to mandate board diversity in SOEs and promoting liquidity management as a fraud prevention mechanism. Auditors are advised to integrate governance indicators when assessing business continuity risk.
... The highlight was reached in the year 2023, where the highest production of articles on the subject was recorded, with a total of (53). This significant increase could be attributed to various factors, such as increased funding of research projects, the participation of new researchers or technological advances that facilitated the generation of knowledge [53]. Finally, a marked decrease in scientific production is observed in the year 2024, with only (6) articles registered. ...
Credit unions are key players in promoting sustainable development by incorporating economic, social, and environmental aspects into their structure and operation. Their holistic approach goes beyond the mere pursuit of financial profitability, also embracing the generation of positive social impact and environmental preservation. The present study sets out to examine in depth the compatibility between credit unions and the principles of sustainable development. To achieve this objective, an exhaustive literature review was conducted, involving the compilation, synthesis and critical analysis of various data sources related to the topic. This process made it possible to identify the various roles that these cooperatives can play as catalysts for positive change in the communities where they operate. It was found that they not only offer inclusive financial services but also foster community participation and promote sustainable practices both in their operations and in their investment decisions. The results obtained highlight the transformative potential of credit unions in the quest for more equitable and sustainable development. By adopting an approach that prioritizes not only economic profitability but also social and environmental well-being, credit unions emerge as key agents in advancing a comprehensive development agenda.
... ROA is used to indicate the company's ability to generate profit by utilizing its total assets (Kebede et al., 2024;Moch et al., 2019). ...
Financial Distress Analysis is a method used to assess the financial condition of a company. This information is crucial for the company and stakeholders in the decision-making process. This research aims to project the potential financial distress of mining companies listed on the Indonesia Stock Exchange during the 2018-2022 period, using the Altman Z-Score and Zmijewski X-Score methods on financial performance. The research applied quantitative methods, with a descriptive and a different test assessment. Data analysis was carried out using the calculation of Altman Z-Score and Zmijewski X-Score using SPSS version 27. The results showed that over five years, out of 31 mining companies, the X-Score model had a significant value of 0.00 < 0.05 on performance, indicating that this method is good for use in mining companies. In conclusion, investors are advised to consider these findings when making investment decisions in the mining sector experiencing financial distress.
... Insurance companies should reduce the debt ratio as much as possible and maintain an optimal capital structure. Meanwhile, the positive relationship between the claims ratio and financial distress indicates that a high claims burden compared to the premium received increases the likelihood of financial distress (Kebede, Tesfaye, & Erana, 2024). Then insurance companies should place more emphasis on corporate responsibility, greater disclosure, and better data for risk quantification in the insurance process (Otavova, Glaserova, & Hasikova, 2023). ...
Insurance is a contractual agreement between two parties, namely the insured party (customer) and the insurer (insurance company), in which the insured party pays a premium to the insurer, then in return, the insurer will provide compensation (claim) to the insured party if an insured event occurs. Each customer is required to pay apremium as an obligation stated in the insurance agreement by paying a premium, the customer fulfills his obligations and is entitled to the benefits stated in the policy. Therefore, the Insurance Company needs to carry out a scheme in the process of paying pure premiums for the sustainability of the insurance company. When determining the premium, it is done by estimating the aggregate loss distribution. This research will calculate thepure premium at the Purwakarta Branch of Jasa Raharja Insurance Company. The model used in this study is the distribution of aggregate loss with a compound distribution of claim frequency and claim size. Many claims follow the Poisson distribution and large claims follow the Lognormal distribution. In the process of estimating the probability of aggregate loss with the compound distribution model, the Inverse method with the Fast Fourier Transform (FFT) algorithm is used. This research will provide understanding and insight to insurance companies in determining the amount of premium that must be charged to customers.
... The analysis focuses on the efficiency with which a corporation utilizes its resources to make profits (Kadarningsih et al., 2020). This study employs ROA as a metric to assess profitability, which is total net profit divided by total assets and expressed as a percentage (Kebede et al., 2024). ...
Amid the economic turmoil triggered by the COVID-19 pandemic, the integrity of financial reporting has become pivotal, posing significant challenges for accounting conservatism. This study aims to explore the impact of tax planning, solvency, and profitability on accounting conservatism (AC) during economic distress (ED), with COVID-19 as a moderating variable. This research introduces the novelty of examining COVID-19's role in modifying the relationships among the key variables. Employing a mixed-method approach, the study analyzes data from 318 annual reports of manufacturing companies listed on the IDX during 2020-2021 and incorporates insights from semi-structured interviews with financial experts. Results indicate that while profitability significantly influences AC, tax planning and solvency do not, except when moderated by pandemic conditions. The ED induced by COVID-19 encourages more aggressive accounting practices, diverging from conservative norms. These findings highlight the necessity for firms to adapt their financial reporting practices under crisis conditions to maintain stakeholder trust and comply with regulatory standards, suggesting that management practices and policy adjustments during pandemics are crucial for sustaining corporate integrity and reliability in financial reporting.
... In Ethiopia, while several studies have been conducted in relation to financial sector stability (Filatie & Sharma, 2024;Kebede et al., 2024;Fisseha, 2023;Yitayaw et al., 2023;Dress, 2022;Abdu, 2021;Isayas & McMillan, 2021;Aman, 2019;Meher & Getaneh, 2019;Zelie & Wassie, 2019;Meressa, 2018), the impact of FI on bank stability remains largely unexplored. Additionally, recent data underscore significant disparities in financial service provision, with loan disbursement heavily concentrated in urban areas (99.8%) and a troubling concentration of loans among the top ten borrowers, who hold 23.5% of all outstanding loans (NBE Financial Stability Report, 2024), highlight the need for a thorough examination of how FI effect bank stability. ...
Background This paper examines the impact of financial inclusion on bank stability within Ethiopian context, using panel data from 17 commercial banks over the period 2015-2023. Given the scarcity of research focused on the relationship between financial inclusion and bank stability in Ethiopia, this paper seeks to address a crucial gap by analyzing both conventional and digital aspects of financial inclusion in relation with bank stability. Methods A two-stage principal component analysis (PCA) was conducted to construct a composite financial inclusion index, integrating 10 conventional and 5 digital indicators. The study applied a two-step robust system generalized method of moments (GMM) to examine the effects of financial inclusion on bank stability, complemented by Granger causality testing to examine the directionality of this relationship. Results The result reveals a significant positive effect of financial inclusion on bank stability and Granger causality tests confirms a bi-directional relationship between financial inclusion and stability, indicating that improvements in financial inclusion foster greater stability and vice versa. Our results also highlight that while bank efficiency and GDP growth rate positively effect stability, total assets and income diversification exhibit detrimental effects. Conclusions It is essential to capitalize policy synergies to promote bank stability and to enhance financial inclusion through conventional and digital channels, while carefully managing the implications of risks associated with income diversification and asset distribution. Ensuring inclusive financial system is vital for maintaining bank stability, thus positioning it as a key priority for financial institutions.
... Non-performing loans (NPLs) are defined as loans in default or close to default, typically characterized by a lack of scheduled payments for 90 days or more (Kebede, Tesfaye, & Erana, 2024). The presence of NPLs is a critical indicator of a bank's financial health, as the NPL ratio representing the proportion of nonperforming loans to total loans provides insights into the quality of a bank's loan portfolio (Juraev, 2023) High levels of NPLs can have significant economic repercussions, affecting lending practices and overall financial stability within the banking sector (Wahyuni, Badollahi, Nurhidayah, & Mardiastuti, 2023). ...
The financial performance of commercial banks in Nigeria is influenced by asset quality and capital
adequacy. This study aims to examine the impact of non-performing loans (NPLs) and loan loss
provisions on the return on equity (ROE) of these banks, while also exploring the moderating effect of
the Risk-Adjusted Capital Ratio (RACR). A quantitative research design is employed, utilizing a panel
data approach to capture both cross-sectional and time-series variations over a 10-year period from
2014 to 2023. The sample consists of seven (7) commercial banks licensed for international operations,
selected using a purposive sampling technique due to their representation of major players in the
Nigerian banking sector.The findings reveal that NPLs and loan loss provisions have a significant
negative impact on ROE, while RACR significantly moderates the relationship between NPLs and ROE.
These results provide robust empirical justification for the utilization of RACR as a performance metric,
offering a reliable tool for stakeholders, investors, and regulators to evaluate bank performance and
make informed decisions. The study suggests that banks should prioritize risk management and credit
risk assessment, implement effective loan recovery strategies, and maintain adequate capital buffers to
absorb potential losses. These insights are valuable for policymakers, regulators, and banking
institutions in Nigeria and beyond, as they highlight the importance of sound financial practices for
ensuring bank stability and profitability
... A lack of liquidity, or illiquidity, signifies an unhealthy financial state. This ratio measures a company's ability to pay off short -term liabilities and the efficiency with which assets can be quickly and cost-effectively converted into cash (Kebede et al., 2024). This article discusses liquidity in the context of its impact on stock prices. ...
This comprehensive study aims to determine how much growth rates, profitability, liquidity, and corporate valuation influence company stock prices listed on the LQ45 index for the 2019-2021 period. The data used in this study is secondary data. The research sample was meticulously selected using a purposive sampling technique so that 34 companies were obtained with 102 samples. The results showed that simultaneously all the variables used, namely: X1_Sustainability Growth Rate, X2_Return on Assets (ROA), X3: Quick Ratio (QR), X4_Price to Book Value (PBV), and X5: Price Earning Ratio (PER) have no effect which is significant to the dependent variable, namely stock prices. However, partially, it was found that the variable X3_Quick Ratio has a significant negative effect on stock prices. However, the other four variables do not significantly affect the dependent variable, namely stock prices. This may be due to this study's significant presence of confounding variables.
... The leverage ratio reflects how dependent the company is on debt to finance its operational activities (Budiarto & Putuyana, 2018;Idawati & Wardhana, 2021;Pangesti et al., 2023). Leverage ratio is crucial, having a strong effect on financial difficulty either positively (Amanda & Tasman, 2019;Anisa et al., 2023;Bukhori et al., 2022;Dini et al., 2021;Idawati & Wardhana, 2021;Kebede et al., 2024;Naibaho & Natasya, 2023;Pranita & Kristanti, 2020;Sari & Hartono, 2020) or negatively (Erwan et al., 2023;Fitri & Dillak, 2020;Gunawan et al., 2020;Maximillian & Septina, 2022;Naibaho & Natasya, 2023;Ramadani & Ratmono, 2023;Rizkyana et al., 2021;Sari & Hartono, 2020;Sarina et al., 2020). Previous studies are inconsistent with the findings of (Ayinaddis & Tegegne, 2023;Dini et al., 2021;Dirman, 2020;Finishtya, 2019;Mubarrok et al., 2020;Muzharoatiningsih & Hartono, 2022;Myllariza, 2021;Pranita & Kristanti, 2020;Putri & Kautsar, 2023;Stefanie et al., 2020;Yuriani et al., 2020) that leverage ratio is not effective on financial difficulty. ...
... The more the company has a high liquidity ratio, the less it will experience financial difficulties because its current assets are sufficient to cover the company's current debts timely (Idawati & Wardhana, 2021). Liquidity ratio is crucial, having a strong effect on financial difficulty either negatively (Anisa et al., 2023;Bukhori et al., 2022;Kebede et al., 2024;Naibaho & Natasya, 2023;Ramadani & Ratmono, 2023) or positively (Ayinaddis & Tegegne, 2023;Maximillian & Septina, 2022;Rochendi & Nuryaman, 2022;Sarina et al., 2020;Stefanie et al., 2020;Yuriani et al., 2020). Inconsistencies were found in (Amanda & Tasman, 2019;Dini et al., 2021;Dirman, 2020;Idawati & Wardhana, 2021;Mubarrok et al., 2020;Muzharoatiningsih & Hartono, 2022;Myllariza, 2021;Pranita & Kristanti, 2020;Putri & Kautsar, 2023;Rizkyana et al., 2021) with their findings that liquidity ratio is not effective on financial difficulty. ...
... The focus of many studies is on companies that are already in the final states of financial difficulty or even bankruptcy, rather than on detecting symptoms of financial difficulty before the bankruptcy itself occurs (Bukhori et al., 2022). The majority of researchers also applied the most popular financial difficulty measurement, namely the Altman model (Anisa et al., 2023;Awward & Razia, 2021;Dirman, 2020;Erwan et al., 2023;Finishtya, 2019;Galant et al., 2023;Kebede et al., 2024;Maximillian & Septina, 2022;Sarker & Hossain, 2023). Therefore, this research seeks to close the existing gap by investigating the financial difficulty state before bankruptcy, applying a measurement model that differs from previous studies, namely Grover, as the strongest financial difficulty predictor compared to Altman & Springate (Aviantara, 2023), even the strongest of any other model variations (Arini, 2021;Hertina et al., 2020;Prasetianingtias & Kusumowati, 2019;Utari, 2021). ...
BPS data showed that IDXNONCYC stocks dominated by the food & beverage companies were the most affected sector by the pandemic. This research aims to investigate the effects of financial & non-financial determinants, namely leverage (DER), liquidity (CR), & company’s age on Grover’s financial difficulty model of IDXNONCYC companies for the 2020-2022 period affected by pandemic with company’s size as a control variable. The research population is all primary consumer goods (IDXNONCYC) companies listed on the official IDX website for the 2020-2022 period, totaling 375 company-year data as objects. A sample of 237 observations were selected using purposive technique. The stages of research analysis are descriptive statistics, classical assumption & multiple regression testing. The data was analyzed through STATA software. This research provides evidence that DER, CR & company’s age have a strong effect on financial difficulty. All hypotheses of this research are accepted. This research pioneered the investigation of the effects of financial and non-financial determinants on Grover’s financial difficulty model. Theoretically, this research has implications for the development of financial difficulty determinants theory. Practically, this research has implications for investor decision-making in the capital market and companies to prevent bankruptcy
