Financial Performance Information as Forming Corporate Failure Model in Indonesia

Raden Ayu Nurlinda, Eka Bertua

Abstract

We examine indicator corporate failure based on profit or cash flows. Measuring profit or cash flow use ratio of industry. Our population is manufacturing companies listed on Indonesia Stock Exchange in 2003 to 2016. Data analysis use Multi Discriminant analysis. Based on indicators, we model corporate failure using agency theory and pecking order theory. The research results show that information based on cash flows have accuracy level higher than information based on profit. The study also evidence that factors of funding, investment, and asset management is indicators that can be used in investigation the possibility of corporate failure. When company experience negative profit, the risk assets more funding by debt, so it can be agency problem. This finding support agency theory. Similarly when companies experienced negative cash flow, funding with equity becomes a main funding.