p–ISSN: 2723 - 6609 e-ISSN: 2745-5254

Vol. 4, No. 8, August 2023 http://jist.publikasiindonesia.id/

Doi : 10.59141/jist.v4i8.666 883

ANALYSIS OF COMPANY BANKRUPTCY POTENTIAL DURING THE

COVID-19 PANDEMIC: A STUDY OF THE TRANSPORTATION AND

HEALTH SECTOR IN INDONESIA IN 2020-2021

*Correspondence

Accepted

: 02-08-2023

Revised

: 08-08-2023

Approved

: 09-08-2023

Introduction

Knowing the condition of a company's financial health is important, moreover

after the covid-19 outbreak that has hit Indonesia since February 2020 (Harjoto, Rossi,

Lee, & Sergi, 2021). The government and society have responded to this pandemic by

telecommunications and pharmaceutical industries gained benefit from the situation

because society tends to choose to invest in medicines and communications equipment

(Mazur, Dang, & Vega, 2021). Unlike state-owned companies, private companies do

not have many financial rescue options in facing potential bankruptcy. Therefore, every

company should arrange strategies anticipating financial distress.

Altman Z-Score is one of the tools to predict the health of the company by using

the company's financial data. In this paper, we will find out the relationship between

Muhammad Bilal Selostannu Rizki, Imo Gandakusuma

Jurnal Indonesia Sosial Teknologi, Vol. 4, No. 8, Agustus 2023 884

sectors.

The novelty of this topic lies in its focus on the transportation and healthcare

sectors during a crisis, which presents a unique context for analysis. By examining the

impact of financial ratios, such as liquidity ratio, debt-to-asset ratio, return on asset,

total asset turnover, sales growth, and operating cash flow, as well as the

macroeconomic factor of lending rate, this study aims to contribute to the knowledge by

providing insights into the dynamics of these industries during the COVID-19 pandemic

and the factors that determine the likelihood of bankruptcy.

The objective of the article is to measure the influence of financial ratios and

macroeconomic factors on the potential bankruptcy of companies in the transportation

employed to analyze the relationship between the variables and bankruptcy potential.

The article will consist of several sections. The introduction will provide an overview of

the topic, the justification for the research, and the research gap. The literature review

will summarize existing research on the impact of financial ratios and macroeconomic

factors on bankruptcy potential, emphasizing the need for research during crisis periods.

The methodology section will describe the research method, data collection process,

variables used, and statistical techniques employed for analysis. The results and

discussion section will present the findings, analyze the impact of financial ratios and

macroeconomic factors on bankruptcy potential in the transportation and healthcare

sectors, and discuss any significant differences between the sectors. Finally, the

literature review, the researchers identified noteworthy gaps and unanswered queries

within the subject area. Consequently, this study endeavors to bridge these gaps by

proposing a series of hypotheses. Specifically, the research focuses on investigating the

interplay between seven independent variables and their potential impact on a single

Analysis Of Company Bankruptcy Potential During The Covid-19 Pandemic: A Study Of The

Transportation And Health Sector In Indonesia In 2020-2021

Jurnal Indonesia Sosial Teknologi, Vol. 4, No. 8, August 2023 885

little profit and is likely to go bankrupt, resulting in a loss of company property capital

which directly impacts change and forces the company to rebuild to survive. Financial

Distress is also indicated by the inability to fulfill its obligations, namely mainly in the

form of short-term obligations, in this case in the form of liquidity obligations and

solvency. This condition can be measured by several methods, one of which is Altman

Z-Score. This method is the most appropriate method for analyzing non-manufacturing,

manufacturing companies, and companies in emerging countries. Where is up to 72%

accurate in predicting bankruptcy within 2 years and up to 80-90% accurate in

predicting bankruptcy within 1 year? Altman's (1968) model, developed using multiple

discriminant analysis (MDA), is widely employed as a measure of financial distress.

by the size of each company, and the aggregated results yield a Z-score. Altman (1968)

concluded that companies with a Z-score below 1.81 are at risk of bankruptcy, while

those with a Z-score above 2.99 are not likely to go bankrupt. Companies falling within

the range of 1.81 to 2.99 have a precarious financial position, commonly referred to as

the 'gray area'. However, for non-manufacturing companies and companies in

developing countries, a Z-score equation to use in predicting potential bankruptcy:

Z = 3.25 + 6.56 X1 + 3.26 X2 + 6.72 X3 + 1.05 X4 (1)

Z = Bankruptcy Index

X1 = Working capital / Total asset

X2 = Retained earnings / Total asset

2. Above 2.6 indicates financial stability,

3. Between 1.1 and 2.6 are also categorized in the 'gray area'.

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Jurnal Indonesia Sosial Teknologi, Vol. 4, No. 8, Agustus 2023 886

study conducted by (Sumani, 2019) and (Priyatnasari & Hartono, 2019) suggests that

the financial factor of the current ratio cannot be used to predict potential bankruptcy.

Based on the above explanation, the hypothesis that can be derived is:

Ha1: Liquidity ratio affects potential bankruptcy.

The debt-to-asset ratio measures how much a company’s assets are funded by debt

(Antikasari & Djuminah, 2017). Suppose the company has a high Debt to asset ratio. In

that case, it indicates that most of its assets are obtained through funding from debt and

potentially give birth to financial distress due to the higher debt burden (Yap,

Munuswamy, & Mohamed, 2012). The company can default due to payment

difficulties. The findings of the studies conducted by (Antikasari & Djuminah, 2017),

Return on assets or ROA is a ratio that measures how efficiently a company

manages its assets to generate profits over a period. ROA represents profitability ratios

in financial distress predictions (Fatmawati, 2010). Based on the research findings of

(Yuspita, Pebruary, & Zahra Husnil Kamala, 2019) and (Muflihah, 2017), return on

assets had a significant negative impact on financial distress in the mining sector listed

on the Indonesia Stock Exchange (BEI) from 2012 to 2016. A study conducted by

(Habib, Costa, Huang, Bhuiyan, & Sun, 2020) also found a significant negative

influence of return on assets on financial distress in the banking companies listed on

BEI. In contrast, the research conducted by (Antikasari & Djuminah, 2017) suggests

that return on assets has a significant positive impact in predicting financial distress.

(NURSIDIN, 2021). Total Asset Turnover is a ratio that shows the total turnover of

assets measured from sales volume or can be interpreted as how far the ability of all

assets to create sales is. Companies with higher total asset turnover demonstrate their

ability to manage assets, leading to increased sales efforts and reduced financial distress

Analysis Of Company Bankruptcy Potential During The Covid-19 Pandemic: A Study Of The

Transportation And Health Sector In Indonesia In 2020-2021

Jurnal Indonesia Sosial Teknologi, Vol. 4, No. 8, August 2023 887

above explanation, the hypothesis that can be derived is:

Ha4: Total asset turnover affects potential bankruptcy.

The growth ratio (sales growth) shows the company’s ability to increase sales

over time (Widarjo & Setiawan, 2009). Sales growth reflects the success of the

company’s investment in the past period and can be used to predict the company’s

future development (Widarjo & Setiawan, 2009). According to (Handayani,

Widiasmara, & Amah, 2019), the higher the sales growth, the lower the likelihood of a

company experiencing financial distress. The research conducted, states that sales

growth has a significant negative impact on the possibility of financial distress.

However, this is in contrast to the findings of previous studies (Sumani, 2019),

it may not be able to invest in viable projects and prevent the company from receiving

external financing (Fernández-Gamez et al., 2020). Companies that have better

investment opportunities, will have the desire to generate significant cash flows as a

result of high difficulty costs. Based on the above explanation, the hypothesis that can

be derived is:

Ha6: Operating cash flow affects potential bankruptcy.

The trade-off theory explains that with corporate debt, companies can reduce

taxes and allow companies to increase profits so that companies do not experience

financial difficulties. Using debt as a means of reducing taxes can increase the

company's interest expense, an increase in interest rates increases interest costs, which

This study uses an estimation that combines pooled data from both time series and

cross-sections using the Ordinary Least Squares (OLS) approach to estimate its

parameters. After that, the next step considers the 2 years of data from 2020-2021 for

health and transportation firms listed on the Indonesia Stock Exchange. The sample

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Jurnal Indonesia Sosial Teknologi, Vol. 4, No. 8, Agustus 2023 888

needed in this study during the research period 2020 to 2021, (4) each company has

financial statement Q1, Q2, Q3, Q4 of 2019 to 2020 (5) align with the criteria, there are

23 companies with the incomplete financial statement for Q1-Q4 for 2020 - 2021 from

92 population with total sample 69 companies. Therefore, the sample to be observed is

138 for 2 years.

Following Bhattacharjee & Han, (2014), potential bankruptcy as the dependent

variable, we collected companies’ Z-score data from secondary data. We collect it from

Revinitif and set the filter to companies listed on Indonesia Stock Exchange.

Independent variables used in the study include financial and macroeconomic ratios.

The financial ratio consists of the current ratio as part of the liquidity ratio, debt to asset

Figure 1. Research model

Based on the general form of panel data regression equations, this research uses

lending rate. α0 is constant, β1, β2, β3 β4, β5, β6, and β7 is parametric coefficients, and

e is error.

Results and Discussion

Analysis Of Company Bankruptcy Potential During The Covid-19 Pandemic: A Study Of The

Transportation And Health Sector In Indonesia In 2020-2021

Jurnal Indonesia Sosial Teknologi, Vol. 4, No. 8, August 2023 889

Return on Asset Ratio displayed a mean of 0.028, accompanied by a standard deviation

of 0.207. In terms of the Total Asset Turnover Ratio, it was observed to have a mean of

0.63, with a standard deviation of 0.55. Moving on to the variable Sales Growth, it

showed a mean value of 1.79, with a standard deviation of 0.22. Exploring further, the

Operating Cash Flow was found to have a mean of 70.5 billion, and a standard deviation

of 258. Finally, the variable Lending Rate exhibited a mean of 0.09, with a standard

deviation of 0.00313.

Table 1

In this research, panel data regression was employed to investigate the influence of

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bankruptcy is influenced by other factors not included in this analysis. These

unaccounted variables may include broader economic conditions, industry-specific

factors, managerial decisions, or external shocks. Therefore, while the examined

independent variables provide valuable insights into potential bankruptcy, it is crucial to

consider other factors that may contribute to a comprehensive understanding of this

phenomenon.

In Table 3 when looking at the result of hypothesis testing, there are three

variables significantly affecting the potential bankruptcy of companies in the health and

transportation sector. First, the Liquidity ratio is statistically significant in affecting the

potential bankruptcy of a firm measured by z-score. Second, the variable debt-to-asset

Table 2

Determination coefficient test result

Analysis Of Company Bankruptcy Potential During The Covid-19 Pandemic: A Study Of The

Transportation And Health Sector In Indonesia In 2020-2021

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Furthermore, the research reveals that the debt-to-asset ratio (DAR) has a

significant impact on the potential for bankruptcy. The t-test results in Table 3 show that