Research Paper
Year: 2020 | Month: January | Volume: 7 | Issue: 1 | Pages: 208-218
The Analysis of Bankruptcy Prediction Model with Adjustment of Earning Management on Textile and Garment Sub-Sector in Indonesia Stock Exchange
Rezky Utami1, Hermanto Siregar2, Ferry Syarifuddin3
123IPB University, School of Business, Jl Raya Pajajaran Bogor, Indonesia
Corresponding Author: Rezky Utami
ABSTRACT
The phenomenon of bankruptcy increase in Indonesia's commercial business. Not only external factors that influence such as macroeconomic conditions, business competition, government policies, etc. Nevertheless, also internal factors that affect the company. Board of Management tends to manipulate earning. Sometimes it could late be anticipated by third parties. The Altman Z Score prediction model is the most preferred model by investors and creditors to analyze the potential bankruptcy of issuers, but this model tends to bias depend on accounting methods used by the company. Earnings management is one factor that can distort the z score. This study found that the adjustment of earnings management models can improve the accuracy of the z score bankruptcy prediction model by 5.5%. Including the adjusted z score model can provide better accuracy than the Ohlson O Score prediction logistic model. This study shows that earnings management adjustments can improve bankruptcy prediction models so that they can anticipate bankruptcy in the textile and garment sub-sector in Indonesia.
Keywords: Altman Z Score, Bankruptcy, Earning Management, Financial Distress, Logistic Regression,Ohlson O Score.
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