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Predicting corporate financial distress: Reflections on choice-based sample bias
Abstract and Figures
Financial distress precedes bankruptcy. Most financial distress models actually rely on bankruptcy data, which is easier to
obtain. We obtained a dataset of financially distressed but not yet bankrupt companies supplying a major auto manufacturer.
An early warning model successfully discriminated between these distressed companies and a second group of similar but healthy
companies. Previous researchers argue the matched-sample design, on which some earlier models were built, causes bias. To
test for bias, the dataset was partitioned into smaller samples that approach equal groupings. We statistically confirm the
presence of a bias and describe its impact on estimated classification rates.
Figures - uploaded by Marjorie B. Platt
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... An unresolved state of failure leads to state insolvency, and when the situation of insolvency cannot be overcome, bankruptcy occurs (Bee et al., 2004;Haber, 2005). The state of financial distress differs significantly from bankruptcy, which occupies an upstream crisis phase, to the aforementioned states (Gupta et al., 2018;Platt & Platt, 2002). From the current perspective, therefore, there is a lack of knowledge in tourism research on which variables and factors affect the probability of financial distress and whether a similar pattern is observable in studies related to other industries. ...
Considering the limited number of studies on the early detection of crises and insolvencies in the tourism industry, there are several research gaps. Therefore, this study analyzes which financial and non-financial variables significantly influence the financial distress of the tourism businesses (hotels and restaurants) in Austria. The resource-based and network-based views were used as theoretical foundations to determine which variables influence the probability of financial distress, with a total of 776 observations from 2005 to 2015 inclusive. The results show that variables describing the endogenous unsystematic risk of tourism businesses (firm-specific level and destination level) make the greatest contribution to explaining financial distress, while exogenous unsystematic and exogenous systematic risk variables show little or no relevance.
... According to Platt and Platt (2002b) Insolvency in bankruptcy is a condition in which the book value of total liabilities exceeds the market value of the company's assets. This is a more complex situation than technical insolvency because, in general, this is a sign of economic failure that leads to the liquidation of a business. ...
This study aims to identify the PESTEL and Porter’s 5-Forces analysis while identifying the turnaround process of TV provider subscription after a decline in firm performance. The case of this study is MSKY Vision Enterprise, which employs a qualitative descriptive approach using the conceptual framework of PESTEL analysis, Porter’s Five forces, and turnaround strategy developed by Hoffman in 1989 in analyzing the condition of a decline in firm performance and an appropriate turnaround strategy. The study is initiated by firstly investigating financial distress using a Multiple Discriminant Analysis (MDA) developed by Altman and Hotchkiss (2006). Furthermore, an analysis of the company’s external and internal factors is conducted to determine the causes of performance decline, threats, and opportunities in the pay television industry in Indonesia. Next, a turnover strategy proposition analysis is proposed to identify the strategic and operational actions taken to overcome the decline in performance.
... Fauzi et al. (2016) berpendapat bahwa dukungan stakeholder mempengaruhi kelangsungan hidup perusahaan, sehingga aktivitas perusahaan adalah untuk memperoleh dukungan stakeholder. Oleh karena itu perusahaan harus memperoleh dukungan dari stakeholder agar perusahaan dapat going concern Financial distress Financial distress didefinisikan oleh Platt & Platt (2002) sebagai tahap akhir penurunan kondisi keuangan perusahaan sebelum perusahaan mengalami kebangkrutan. ...
Penyebaran virus Covid-19 menyebabkan PDB di Indonesia terkontraksi, hal tersebut menyebabkan perusahaan di Indonesia mengalami kesulitan keuangan. Ukuran perusahaan serta pelaksanaan CSR dapat menjadi faktor terjadinya fianancial distress pada suatu perusahaan. Penelitian ini dilakukan dengan tujuan untuk mengetahui pengaruh ukuran perusahaan terhadap kondisi financial distress dengan moderasi CSR. Penelitian bersifat kuantitatif dengan populasi penelitian adalah perusahaan manufaktur yang telah terdaftar di BEI pada tahun 2015-2019. Sampel pada penelitian ini diperoleh dengan menggunakan metode purposive sampling, sehingga diperoleh 50 perusahaan manufaktur. Data pada peneleitian ini adalah data sekunder yang diperoleh dari www.idx.co.id. Metode pengujian data yang digunakan adalah analisis regresi logistik dan moderated regression analysis (MRA). Penelitian ini menemukan dua hasil. Pertama, ukuran perusahaan mempunyai pengaruh negatif terhadap financial distress. Kedua, CSR tidak dapat memoderasi pengaruh negatif dari ukuran perusahaan terhadap kondisi financial distress di perusahaan manufaktur. Implikasi dari penelitian ini adalah perusahaan dan investor dapat memprediksi kondisi keuangan perusahaan melalui ukuran perusahaan serta pelaksanaan CSR
... The ability to maintain prudent financial performance in measuring/anticipating risk can prevent bankruptcy. Some studies relevant to the FD topic area, [5], [6], [7], [8], [9] including academic researchers in [10], [11], [12], [13]. This analysis of financial distress during the 2020-2021 pandemic is important to see how the condition of banking performance is compared to conditions before the pandemic from 2016-2019. ...
This study was conducted to analyze the effect of liquidity ratios (LDR), profitability (ROA), and leverage (CAR) on the financial difficulties of banking companies listed on the Indonesia Stock Exchange (IDX) for the 2020-2021 period, moderated by credit risk during the COVID-19 pandemic. 19. Financial Distress was measured using the Altman Z-Score model, and compared with conditions before the 2016-2019 pandemic, so that the research data was taken from the annual report for the 2016-2021 period. The samples collected were 27 companies. This study uses quantitative analysis techniques with linear regression and processed using SPSS 22. The results of this study indicate that during the pandemic period and before COVID-19 in Indonesia, liquidity, profitability and leverage ratios have a significant effect on financial difficulties. Credit risk as a moderating variable can only strengthen the influence of the liquidity ratio and profitability ratio. Meanwhile, the leverage ratio cannot be moderated by credit risk. In the pre-pandemic period of 2016-2019, it showed that the ratio of liquidity, profitability, and leverage could not be moderated by credit risk. The findings in this study explain that banking conditions are not in financial difficulty during the pandemic, but profits for companies are low. This anomaly is caused by over-liquidity from credit that is not widely distributed to the business sector.
... Finansial distress adalah kejadian umum di banyak perusahaan. Menurut (Platt & Platt, 2002) finansial distress adalah suatu tahapan terjadinya penurunan kesehatan pada keuangan di sebuah perusahaan sebelujm terjadi kebangkrutan. Analisis kebangkrutan dilakukan untuk memperoleh peringatan awal kebangkrutan atau tanda-tanda kebangkrutan (Mahtania & Gard, 2018). ...
ABSTRAKPenelitian ini membahas tentang dampak dari krisis yang ditimbulkan oleh pandemic covid-19. Adapun rumusan masalah dari penelitian ini bertujuan untuk mengetahui seberapa signifikan perbedaan yang ditimbulkan oleh pandemic covid-19 pada finanacial performance (ROA, ROE, NPM) serta financial distress perusahaan industri barang konsumsi di Bursa Efek Indonesia. Penelitian ini menggunakan data sekunder dan merupakan penelitian deskriptif komparatif dengan pendekatan kuantitatif. Populasi meliputi perusahaan industri barang konsumsi di BEI, kemudian dipilih menggunakan teknik purposive sampling, didapatkan sampel sejumlah 11 perusahaan industri barang konsumsi yang memenuhi kriteria. Adapun proksi yang digunakan mengukur financial distress menggunakan Wilcoxon sisgn rank test. Hasil penelitian mengungkapkan bahwa rasio financial performance yang meliputi ROA, ROE, dan NPM pada perusahaan industri barang konsumsi mengalami perbedaan yang tidak signifikan, sedangkan financial distress (Z-score) perusahaan industri barang konsumsi juga mengalami perbedaan yang tidak signifikan antara sebelum dan selama pandemi covid-19. Berdasarkan hasil tersebut, diharapkan bagi manajemen perusahaan untuk segera memperbaiki kondisi kesehatan keuangan perusahaan yang memburuk selama pandemi, sehingga bisa terbebas dari pot6ensi kebangkrutan.Kata kunci : ROA, ROE, NPM dan Altman Z-score
... Kondisi financial distress yang diketahui sejak awal dapat menggunakan suatu model peringatan dini (early warning system). Model tersebut dapat digunakan untuk alat untuk mengetahui gejala awal kondisi financial distress (Platt, 2018). ...
The study was conducted to analyze financial distress at 4 Islamic banks listed on the Indonesia Stock Exchange. The four banks became the population and sample in this study, which consisted of PT. Bank Syariah Indonesia Tbk (BRIS), PT. Bank Aladin Syariah Tbk (BANK), PT. Bank BTPN Syariah Tbk (BTPS) and PT. Bank Panin Dubai Syariah Tbk (PNBS). The data used is secondary data from the Financial Services Authority website for 2016-2021. The data analysis technique uses financial distress analysis with the Springate model. The research results obtained that only PT. Bank Syariah Indonesia Tbk (BRIS) for 2016-2021 is in good condition. PT. Bank Aladin Syariah Tbk (BANK) in 2016, 2018 and 2021 with results of S < 0.861 so that it can be declared unhealthy or experiencing financial difficulties. Likewise with PT. Bank BTPN Syariah Tbk (BTPS) also experienced financial difficulties in 2018 and 2018 with an S value <0.862. Then PT. Bank Panin Dubai Syariah Tbk (PNBS) in 2017 and 2021 also obtained an S value <0.862. This is because the Bank obtains a negative profit value or suffers a loss.
... Kesulitan keuangan menunjukkan tahap penurunan kondisi keuangan pada perusahaan sebelum terjadinya kebangkrutan (Platt dan Platt, 2002). Tinoco dan Wilson (2013) mengatakan bahwa kesulitan keuangan dapat diidentifikasi sebelum terjadinya kebangkrutan. ...
AbstrakTujuan – Penelitian ini menganalisis fokus pemilihan strategi yang sebaiknya dipilih oleh PT SLJ Global Tbk pada siklus pemulihan di tahun 2016 dan 2017, serta menganalisis strategi pemulihan terbaik PT SLJ Global Tbk berdasarkan model proses turnaround Smith dan Graves (2005).Metode penelitian – Penelitian ini menggunakan analisis isi, analisis deskriptif, dan uji beda. Analisis isi untuk mengetahui fokus strategi apa yang dipilih PT SLJ Global Tbk pada siklus pemulihan. Analisis deskriptif untuk menganalisis strategi pemulihan terbaik perusahaan dari model proses turnaround Smith dan Graves (2005). Uji beda chi square untuk mengetahui apakah terdapat keterkaitan antara kondisi perusahaan dan strategi pemulihan. Uji beda Friedman Two Way ANOVA untuk mengetahui apakah perusahaan telah mengalami peningkatan kinerja.Temuan – Hasil penelitian menunjukkan bahwa PT SLJ Global Tbk memilih fokus strategi entrepreneurial pada siklus pemulihan di tahun 2016 dan 2017. Hasil uji chi-square menunjukkan bahwa terdapat keterkaitan antara kondisi perusahaan dan strategi pemulihan. Hasil dari model proses turnaround Smith dan Graves (2005) menunjukkan bahwa PT SLJ Global Tbk sebaiknya berfokus menggunakan strategi entrepreneurial. Hasil uji Friedman Two Way ANOVA menunjukkan adanya peningkatan kinerja.Originalitas – Salah satu fokus utama dalam penelitian ini ialah menganalisis strategi yang fokus digunakan oleh suatu perusahaan berdasarkan indikator analisis isi dan menganalisis strategi terbaik perusahaan dari model proses turnaround Smith dan Graves (2005). Belum ada penelitian dengan metoda analisis isi yang menggabungkan dengan model proses turnaround. Fokus strategi yang dipilih oleh perusahaan belum tentu menggambarkan strategi terbaik apabila dilihat dari kondisi keuangan.
... Debt to asset ratio Hasil penelitian juga sesuai dengan penelitian yang dilakukan oleh Ahmad (2011) yang menyatakan bahwa debt to asset ratio signifikan berpengaruh positif terhadap kemungkinan terjadinya financial distress di suatu perusahaan. Hasil yang sama juga ditunjukkan dalam penelitian yang telah dilakukan oleh Platt (2002) yang menunjukkan bahwa rasio leverage berpengaruh positif dan signifikan terhadap kondisi financial distress. ...
The aim of this study was to determine the effect of liquidity, profitability, leverage, operating capacity, and managerial agency costs on financial distress in manufacturing companies listed on Indonesia Stock Exchange. The research period used was 2015-2017. The type of this research was associative causal with quantitative approach. The population of this study includes all manufacturing companies listed on Indonesia Stock Exchange. The sampling technique used was purposive sampling, and obtained as many as 84 companies, consists of 42 companies that experienced financial distress, and 42 companies that didn’t experience financial distress as comparison company. Data analysis conducted through logistic regression. Based on this research, it was concluded that liquidity proxied by current ratio had no effect to financial distress. Profitability proxied by return on asset had no effect on financial distress. Leverage proxied by debt to asset ratio had a significant and possitiveeffect on financial distress. Operating capacity proxied with total asset turnover had no effect on financial distress. Managerial Agency costs had no effect on financial distress. The Nagelkerke R Square’s score in this study was 0.491 which means that the ability of liquidity, profitability, leverage, operating capacity, and managerial agency were able to explain the variable of financial distress condition by 49.1%. The remaining of 50.9% dependent variables were explained by other factors outside the model.
Financial distress merupakan situasi kesulitan keuangan sebelum terjadinya kebangkrutan ataupun likuidasi. Penelitian ini bertujuan untuk menguji pengaruh intellectual capital, leverage dan pertumbuhan penjualan terhadap financial distress. Penelitian ini menggunakan empat variabel kontrol yaitu current ratio, return on asset, firm size dan asset tangibility. Sampel dalam penelitian ini adalah perusahaan manufaktur yang terdaftar di Bursa Efek Indonesia dari tahun 2012 sampai dengan 2019. Pemilihan data sampel menggunakan metode purposive sampling sehingga diperoleh 152 observasi. Model yang digunakan adalah regresi data panel dengan pendekatan random effect model. Hasil penelitian menunjukkan bahwa intellectual capital berpengaruh negatif terhadap financial distress dan leverage berpengaruh positif terhadap financial distress. Sementara itu, pertumbuhan penjualan tidak berpengaruh terhadap financial distress.
The purpose of the study was to determine the effect of the fraud pentagon on the threat of bankruptcy in banking companies listed on the Indonesia Stock Exchange in 2018-2020. The fraud Pentagon consists of five indicators namely external pressure, effective monitoring, auditor turnover, director turnover and the number of frequent CEO photos. While the threat of bankruptcy is measured by the X-Score. The method of data analysis is descriptive and hypothesis testing using multiple linear regression analysis. The research sample is 122 financial statements from 42 banking companies listed on the Indonesia Stock Exchange in 2018-2020. The results showed that external pressure variables and changes in auditors had an effect on the threat of bankruptcy. While the variables of effective supervision, the change of directors and the number of CEO photos that often have no effect on the threat of bankruptcy
This study uses event history methodology and dynamic models to examine bankruptcy and financial distress. Dynamic models incorporate the conditional probability of a firms financial status changing from financially distressed to stable or bankrupt and enable us to simultaneously examine stable, financially distressed and bankrupt firms. We also add to the literature by incorporating two economic indicator variables and extend prior research with an analysis by industry segment.
A firm in the early stages of financial distress exhibits characteristics different from those of healthy firms. As the economic condition of a firm worsens, its financial characteristics shift toward those of failed firms. Practitioners in the financial sector have long been interested in the early detection of a firm's slide toward insolvency. Several models have been developed with this purpose in mind, but these older models are static in nature. Therefore, a need exists for the development of business failure prediction models that assess the financial condition of firms sequentially over time. This article addresses this need by presenting a sequential business failure prediction model.
A firm in the early stages of financial distress exhibits characteristics different from those of healthy firms. As the economic condition of a firm worsens, its financial characteristics shift toward those of failed firms. Practitioners in the financial sector have long been interested in the early detection of a firm's slide toward insolvency. Several models have been developed with this purpose in mind, but these older models are static in nature. Therefore, a need exists for the development of business failure prediction models that assess the financial condition of firms sequentially over time. This article addresses this need by presenting a sequential business failure prediction model.
Two of the most widely used statistical techniques for analyzing discrete economic phenomena are discriminant analysis (DA) and logit analysis. For purposes of parameter estimation, logit has been shown to be more robust than DA. However, under certain distributional assumptions both procedures yield consistent estimates and the DA estimator is asymptotically efficient. This suggests a natural Hausman specification test of these distributional assumptions by comparing the two estimators. In this paper, such a test is proposed and an empirical example involving corporate bankruptcies is provided. The finite-sample properties of the test statistic are also explored through some sampling experiments.
This paper examines debt restructurings by financially distressed firms. We develop a model which predicts that, in public debt exchange offers, firms with unfavorable private information will offer equity claims to convince bondholders that the firm's prospects are poor. In contrast, offering equity to well-informed private lenders conveys favorable private information to outsiders. Consistent with our analysis, we find positive average abnormal returns around restructurings that offer equity to private lenders and senior debt to public debtholders, and we find significant negative average abnormal returns when private lenders are offered senior debt and public lenders are offered equity.
This paper examines financial distress and its effect on organizational efficiency. Imperfect information and conflicts of interest among the firm's claimholders influence the outcome of financial distress. Methods for resolving distress and controlling conflicts of interest are discussed. New evidence on financial restructuring and distress costs is presented along with evidence on the organizational restructuring that accompanies financial distress. The evidence demonstrates that financial distress has benefits as well as costs, and that financial and ownership structure affect the net costs.