"
ABSTRAKThe economy of Indonesia has rapidly grown since its first economic
turmoil in 1997/1998. The annual growth rate of the GDP exceeded 6% in the last
four years despite the global economies slow down due to the consequences of
‘bubble’ subprime mortgage that ruined most of the world’s financial institutions.
The growth significantly energizes the local economic activities either in the
industrial market or in the capital market.
In spite of the ‘bull’ market, the risk of financial distress remains alive and
the economic direction might change because of the volatility of business
environment. There is no firm protected or immune from financial adversity that
may result in failure, insolvency, default or bankruptcy. Plummeting stock price,
reduced dividend payment, consecutive net loss, massive lay-offs, pending
obligations and a fair number of other negative signs are common association with
financial distress.
Widely recognized, financial distress prediction models may be examined
to assess a firm’s economic situation for further purposes. Altman, Ohlson,
Zmijewsky, Fulmer, and Springate are some of notable researchers to which their
models are referred to evaluating the soundness of a firm. However, each market
has its own financial distress environment that in consequence any financial
distress prediction model requires an evaluation whether or not the model
adequately fits to a certain market, in particular Indonesia for this case. The
importance of predictors and accuracy will minimize producing misleading results
from the economic forecast.
The results of this testing against the first hypothesis showed that none of
the adjusted models included all the variables of the base model, respectively.
There were some variables with insufficient explanatory power to predict the
cessation of activities of the tested firms. The second hypothesis argued that the
adjusted models were less capable than those developed originally in terms of
accuracy.
ABSTRACTThe economy of Indonesia has rapidly grown since its first economic
turmoil in 1997/1998. The annual growth rate of the GDP exceeded 6% in the last
four years despite the global economies slow down due to the consequences of
‘bubble’ subprime mortgage that ruined most of the world’s financial institutions.
The growth significantly energizes the local economic activities either in the
industrial market or in the capital market.
In spite of the ‘bull’ market, the risk of financial distress remains alive and
the economic direction might change because of the volatility of business
environment. There is no firm protected or immune from financial adversity that
may result in failure, insolvency, default or bankruptcy. Plummeting stock price,
reduced dividend payment, consecutive net loss, massive lay-offs, pending
obligations and a fair number of other negative signs are common association with
financial distress.
Widely recognized, financial distress prediction models may be examined
to assess a firm’s economic situation for further purposes. Altman, Ohlson,
Zmijewsky, Fulmer, and Springate are some of notable researchers to which their
models are referred to evaluating the soundness of a firm. However, each market
has its own financial distress environment that in consequence any financial
distress prediction model requires an evaluation whether or not the model
adequately fits to a certain market, in particular Indonesia for this case. The
importance of predictors and accuracy will minimize producing misleading results
from the economic forecast.
The results of this testing against the first hypothesis showed that none of
the adjusted models included all the variables of the base model, respectively.
There were some variables with insufficient explanatory power to predict the
cessation of activities of the tested firms. The second hypothesis argued that the
adjusted models were less capable than those developed originally in terms of
accuracy."
Fakultas Ekonomi dan Bisnis Universitas Indonesia, 2012
