The Role of Non-Financial Factors in Detecting Bankruptcy by Mediating Financial Performance

Ani Nuraini, Farah Margaretha Leon, Bahtiar Usman


This study aimed to determine whether non-financial factors directly or indirectly affect bankruptcy through financial performance as a mediating variable. The novelty of this study combines non-financial information as an independent variable and financial performance as a mediating variable in determining the probability of bankruptcy. The population included 19 manufacturing companies listed on the Indonesia Stock Exchange from 2009 to 2019. Furthermore, secondary cross-section and time-series data analyzed using a structural equation model were used to examine the direct and indirect effects. Logistic regression was also performed to determine the effect of the bankruptcy probability. The data processing results show that the non-financial variables, including Corporate Governance, Market Information, Research and Development (R&D), and Macro Factors, do not directly affect bankruptcy. However, they significantly affect the mediation of Financial Performance on Return on Equity (ROE), while the Debt to Asset Ratio (DAR) is insignificant. This leads to a model that detects bankruptcy apart from direct financial performance. Furthermore, it is necessary to detect beforehand the effect of non-financial variables, comprising Good Corporate Governance (Boards of Commissioners and Directors), Market Information (Market Book), R&D, and Macro Factors (Interest and Exchange Rates). These results may help predict company bankruptcy using various non-financial information as independent variables. However, the information is inseparable from financial performance as a mediation determinant of the company's health.


Keywords: bankruptcy, corporate governance, financial performance, research, development.

Full Text:



NURAINI, A. Probability of Default in Manufacturing Companies in Indonesia. Purwokerto: CV. Pena Persada, 2021.

HILL, K., and DOHERTY, J. Pandemic Spurs Most Bankruptcy Filings since 2009. Bloomberg, 2021.

NURAINI, A., LEON, F.M., and USMAN, B. Analysis of the Effect of Governance and Research and Development on Probability of Default. International Journal of Science and Society, 2020, 2(4): 492–506.

MEMON, M.A., CHEAH, J., RAMAYAH, T., TING, H., and CHUAH, F. Mediation Analysis Issues and Recommendations. Structural Equation Modeling, 2018, 2(January): i–ix, 2018.

FATIMAH, B., MARDANI, RONNY, and WAHONO, M. The Effect of Good Corporate Governance on Company Value with Financial Performance as an Intervening Variable. E-journal, 2019, 8(15): 51–69.

OF, J., and KABLAN, A. Altman’s Z-Score to Predict Accounting Based Financial Distress of Municipalities : Bankruptcy Risk Map for Metropolitan Municipalities in Turkey. Journal of Business Research, 2020, 12(1): 498–509.

CINDIK, Z., and ARMUTLULU, I.H. A revision of the Altman Z-Score model and a comparative analysis of Turkish companies ' financial distress prediction. National Accounting Review, 2021, 3(2): 237–255.

ULLAH, H., WANG, Z., ABBAS, M.G., ZHANG, F., SHAHAD, U., and MAHMOOD, M.R. Association of Financial Distress and Predicted Bankruptcy: The Case of Pakistani Banking Sector. Journal of Asian Finance, Economics, and Business, 2021, 8(1): 573–585.

HIONG, H.K., JALIL, M.F., TIONG, A., and SENG, H. Estimation and Prediction of Financial Distress : Non-Financial Firms in Bursa Malaysia. Journal of Asian Finance, Economics, and Business, 2021, 8(8): 1–12.

NAJIB, A.S., and CAHYANINGDYAH, D. Analysis of the Bankruptcy of Companies with Altman Model and Ohlson Model. Management Analysis, 2020, 9(3): 243–251.

SRIVASTAVA, S., SARANYA, G., PRATAP, A., and AGRAWAL, R. Loan Default Prediction Using Artificial Neural Networks. International Journal of Advanced Science and Technology, 2020, 29(6): 2761–2769.

DHAR, S.P., BAIDYA, B., DAS, B., and BOSE. Financial Health of Select Indian It Companies - a Study Concerning Z-Score Analysis. Resources Explorer, 2019, VII(23): 1–7.

GONZALES, H., EDUARDO, A., RODRIGUEZ, F., and GANGA, F. Predicting Corporate Financial Failure Using Macroeconomic Variables and Accounting Data. Computational Economics, 2019, 53(1): 227–257.

AKBAR, M.A., AKBAR, A., TANG, M., and QURESHI, W. Is bankruptcy risk tied to the corporate life cycle? Evidence from Pakistan. Sustainability, 2019, 11(3): 1–22.

BRAGOLI, G., CORTELEZZI, D., and GIANNOCCOLO, P.M. R&D Investment timing, default and capital structure. Review of Quantitative Finance and Accounting, 2019, 0123456789.

APERGIS, N., BHATTACHARYA, M., and INEKWE, M. Prediction of financial distress for multinational corporations: Panel estimations across countries. Applied Economics, 2019, 51(39): 4255–4269.

HILALIYA, T., and MARGARETHA, F. The Role of Corporate Governance in Reducing Bankruptcy in Companies in Indonesia. Journal of Accountancy, 2017, 21(3): 391.

FERNANDO, G., RUWANI, J.M., and LI, L. Financial versus Non-Financial Information for Default Prediction: Evidence from Sri Lanka and the USA. Emerging Markets Finance and Trade, 2019, 00(00): 1–20.

BALASUBRAMNIAN, B., PALVIA, A.A., and PATRO, D.K. Can the Book-to-Market Ratio Signal Banks’ Earnings and Default Risk? Evidence around the Great Recession. Journal of Financial Services Research, 2019, 56(2): 119–143.

LI, L., and FAFF, R. Predicting corporate bankruptcy : What matters ? International Review of Economics & Finance, 2019, 62: 1–19.

ZUTTER, S.B., and SMART, S.J. Principles of Managerial Finance, Fifteenth. United Kingdom: Pearson, 2019.

MUNIRA, M., SATRIA, I., and AYUN, I.Q. The Effectiveness of The Altman Z-Score and Springate Methods in Analyzing The Potential for Company Bankruptcy. International Journal of Business and Information Technology, 2021, 3(1): 63–78.

PUSPITASARI, D.M., FEBRIAN, E., ANWAR, M., SUDARSONO, R., and NAPITUPULU, S. Determinants of Default Risks and Risk Management : Evidence from Rural Banks in Indonesia. Journal of Asian Finance, Economics, and Business, 2021, 8(8): 497–502.

FERNANDO, J.M.R., LI, L., and HOU, Y. Corporate governance and default prediction: a reality test. Applied Economics, 2018, 51(24): 2669–2686.

PRAMUDENA, S.M. The Impact of Good Corporate Governance on Financial Distress in the Consumer Goods Sector. Journal of Finance and Banking Review, 2017, 2(100): 46–55.

UD-DIN, S., KHAN, M.Y., JAVEED, A., and PHAM, H. Board Structure and Likelihood of Financial Distress : An Emerging Asian Market Perspective. Journal of Asian Finance, Economics, and Business, 2020, 7(11): 241–250.

USHEVA, M., VAGNER, L., and WEST, S. Earnings Management as a Tool of Bankruptcy Prevention during Global Pandemic of COVID-19. The 20th International Scientific Conference Globalization and its Socio-Economic Consequences 2020, 2020: 92.

CHERKASOVA, V., and KURLYANOVA, A. Does corporate R&D investment support to decrease in default probability of Asian firms? Borsa İstanbul Review, 2019, 19(4): 344–356.

ROHIMAN, S.F., and DAMAYANTI, C.R. Effect of Inflation, Exchange Rates and Interest Rates on Financial Distress. Journal of Business and Administration, 2019, 72(2): 186–195.

XING, K., and YANG, X. Predicting default rates by capturing critical transitions in the macroeconomic system. Finance Research Letters, 2019, February.

BARBOZA, E., KIMURA, F., and ALTMAN, H. Machine learning models and bankruptcy prediction. Expert Systems with Applications, 2017, 83: 405–417.

JABEUR, S.B. Bankruptcy prediction using Partial Least Squares Logistic Regression. Journal of Retailing and Consumer Services, 2017, 36(February): 197–202.

CHARALAMBAKIS, I., EVANGELOS, C., and GARRETT. On corporate financial distress prediction: What can we learn from private firms in a developing economy? Evidence from Greece. Review of Quantitative Finance and Accounting, 2019, 52(2): 467–491.

DUC HONG, M.V., PHAM, B.N.V., PHAM, T., and MCALEER, V.T. Corporate Financial Distress of Industry Level Listings in an Emerging Market. Australian Research Council – Ministry of Science and Technologies, 2019, March: 1–31.

MERKLE, C., and SEXTROH, C.J. Value and momentum from investors’ perspective : Evidence from. Journal of Empirical Finance, 2021, 62: 159–178.

CEYLAN, I.E. The Impact of Firm-Specific and Macroeconomic Factors on Financial Distress Risk : A Case Study from Turkey. Universal Journal of Accounting and Finance, 2021, 9(3): 506–517.

BEAVER, W.H., CASCINO, S., CORREIA, M., and MCNICHOLS, M.F. Group affiliation and default prediction. Management Science, 2019, 65(8): 3559–3584.

RAHAYU, S.M. Mediation effects financial performance toward influences of corporate growth and assets utilization. International Journal of Productivity and Performance Management, 2019, 68(5): 981–996.

HERLIANSYAH, Y.S. The Effect of Capital Expenditure, Company Growth, and Company Size on Firm Value through Financial Performance Moderated By Capital Structure. Corporate Ownership and Control, 2019, 17(1): 236–244.

BAROROH, N., AGUSTINA, L., and SURYARINI, T. The Role of Financial Performance to Mediate the Effect of Corporate Governance on Firm Value. INTCESS 2017-4th International Conference on Education and Social Sciences, 2017, 4(February): 981–985.

GANIYY, A.A., AHMAD, N.H., and ZAINOL, Z. The Mediating Effects of Profitability on the Liquidity Risk and Cost Efficiency of Islamic Banks in Selected Countries. Journal of Islamic Economics, Finance, and Banking, 2017, 13(3): 130–150.

EKANANDA, M. Basic Econometrics, 2nd ed. Jakarta: Mitra Wacana Media, 2019.

ARISKA, P.R.T., and ARIEF, M. The Effect of Gender Diversity and Financial Ratios on Financial Distress in Manufacturing Companies Indonesia. International Journal of Economics, Business, and Accounting Research, 2021, 1: 324–338.

NURFAJRINA, A., SIREGAR, H., and SAPTONO, I.T. Analysis of Financial Distress on Agribusiness Companies on the Indonesia Stock Exchange. Jurnal Keuangan dan Perbankan, 2016, 20(3): 448–457.

SHIVANI, S.S., JAIN, M.V., and YADAV, P.K. Governance Structure and Accounting Returns : Study of Nifty500 of Corporates. Business Analysis, 2017, 37(2): 179–194.

KALYANI, N., and MATHUR, S. Does Corporate Governance Affect the Financial Performance and Quality of Financial Reporting of Companies ? A Study on Selected Indian Companies. Business Governance and Society, 2019, 2019: 105–125.

HUAJING , J.L. Technological human capital, firm innovativeness, and entrepreneurial success: the moderating role of seeking and receiving external funding. World Review of Entrepreneurship Management and Sustainable Development, 2017, 13(1).

EGBUNIKE, C.F. Macroeconomic factors, firm characteristics and financial performance a study of selected quoted manufacturing firms in Nigeria. Asian Journal of Accounting Research, 2018, 3(2): 142–168.

HANDRIANI, E., and GHOZALI, I. Corporate governance on financial distress : Evidence from Indonesia. Management Science Letters, 2021, 11: 1833–1844.

THATRAK, D. The Effect of Strategic Innovation on Company Performance : A Case Study of the Industrial Estate of Thailand. Journal of Asian Finance, Economics, and Business, 2021, 8(8): 37–45.

MANKIW, N.G. Principles of Macroeconomics, Eighth. Boston: Cengage Learning, 2018.


  • There are currently no refbacks.