Determinants of Financial Distress in Indonesian Textile and Garment Companies

Abstract

Focusing on textile and garment firms listed on the Indonesia Stock Exchange from 2021 to 2024, this research evaluates how financial distress is affected by liquidity, leverage, Interest Coverage Ratio (ICR), and firm size. This study employs a quantitative causal design using panel data from 12 listed firms, resulting in 48 firm-year observations selected through purposive sampling. Financial distress was assessed using the Altman Z-Score, while liquidity, leverage, and firm size were represented by the Current Ratio (CR), Debt to Asset Ratio (DAR), and the natural logarithm of total assets, respectively. Panel data estimation identified the Fixed Effect Model (FEM) as the most appropriate model for analysis. Empirical findings reveal leverage as the sole determinant significantly affecting financial distress, whereas liquidity, the Interest Coverage Ratio, and firm size show no significant relationship. These findings suggest that debt used for productive purposes can strengthen firms’ financial performance, enabling companies to meet their financial obligations and lowering the likelihood of financial distress