Uncovering the Determinants of Financial Distress: An Empirical Study of Manufacturing Firms Listed on the Indonesia Stock Exchange (2020–2023)

Abstract

This study aims to examine the effect of managerial ownership, Return on Assets (ROA), and firm size on financial distress in manufacturing companies listed on the Indonesia Stock Exchange during the 2020–2023 period. This research employs a quantitative approach with a causal associative method. The sample is selected using a purposive sampling technique, resulting in 32 companies with a total of 128 observations. The study utilizes secondary data derived from annual financial reports of the companies. Financial distress is measured using the Altman Z-Score model, while data analysis is conducted using multiple linear regression. Prior to hypothesis testing, classical assumption tests are performed, including tests for normality, heteroscedasticity, multicollinearity, and autocorrelation. The results indicate that managerial ownership has a significant negative effect on financial distress. This finding suggests that a higher proportion of managerial shareholding reduces the likelihood of financial distress. In contrast, ROA and firm size do not have a statistically significant effect on financial distress. These findings support agency theory, which explains that managerial ownership helps reduce agency conflicts and enhances the effectiveness of corporate monitoring mechanisms. This study implies that firms should strengthen governance mechanisms and ownership structures to mitigate the risk of financial distress.