Investigating the Effect of Liquidity, Leverage, Sales Growth, and Good Corporate Governance on Financial Distress

Abstract

Large companies may experience financial distress because of their inability to compete. Therefore, investors should be more vigilant in investing their funds. Some ways that can be done is through cash flow analysis, analysis of corporate strategy, and analysis of financial statements. This study aims to determine the effect of liquidity, leverage, sales growth, and good corporate governance on financial distress. The study used 55 samples of telecommunication and non-construction companies listed in Indonesia Stock Exchange period 2013-2017. The technique sampling in this study is the purposive sampling method. The data analysis method is PLS (Partial Least Square). The results of this study indicate that liquidity, leverage, sales growth, and good corporate governance do not affect financial distress. These unexpected results may due to the limitation of this study. Therefore, for future research in financial distress, it is suggested to take into account the sample size and other variables that expected to affect financial distress.

Empirical Evidence of Financial Distress in Indonesia

“…Studies that used GCG as variable are Dianova and Nahumury (2019), Hilaliya and Margaretha (2017), Juniarti (2013), Cahyani and Diantini (2016), and others. Next, the studies that used liquidity, profitability, leverage, and activity as variables are Nurfajrina et al (2016), (Heniwati and Essen (2020), Pujiastuti and Yuharningsih (2014), Oktarina (2017), Utami and Kartika (2019), Sumani (2019), Antikasari and Djuminah (2017), and (Mafiroh and Triyono (2018).…”

“…Previous studies gave empirical evidence of financial distress using internal indicators, such as financial conditions and corporate governance, which gave different results. Dianova and Nahumury (2019) found that liquidity ratio, leverage, sales growth, and corporate governance do not affect financial distress. Fahlevi and Mukhibad (2018) found that liquidity, profitability, and leverage do not affect financial distress.…”

Auditor Switching, Financial Distress, and Financial Statement Fraud Practices with Audit Report Lag as Intervening Variable

“…Financial distress is terrible news for company financial reports (Muliantari & Latrini, 2017). Financial distress can be seen from the ratio between the company's long terms debt and total assets owned (Dianova & Nahumury, 2019). For companies, they will avoid publication if the company is experiencing difficult financial conditions.…”

Financial Distress Dipengaruhi oleh Sales Growth dan Intellectual Capital

“…Hal ini dikarenakan tingginya tingkat Sales Growth tidak selalu memiliki beban yang sedikit sedikit, sehingga laba bersih yang dihasilkan hanya sedikit atau tidak mencapai target bahkan bisa negative, hal tersebut dapat berdampak terhadap kondisi keuangan perusahaan yang dapat memungkinkan terjadinya Financial Distress di masa mendatang. Penelitian ini sejalan dengan penelitian ( Rahmy, 2015;Prasetya, 2021;Dianova, 2019;dan Giarto ; yang menyatakan bahwa sales growth tidak berpengaruh terhadap Financial Distress. Hasil penelitian Amanda (2019) menyatakan hasil yang berbeda yakni sales growth berpengaruh terhadap Financial Distress.…”