LIQUIDITY, LEVERAGE, AND FINANCIAL DISTRESS: EVIDENCE FROM INDONESIAN TEXTILE AND GARMENT COMPANIES
Abstract
Research Objectives: This study aims to examine the effect of liquidity and leverage on financial distress among textile and garment sub-sector companies listed on the Indonesia Stock Exchange (IDX) during the 2021–2023 period. Design Methodology / Approach Research: This study employs a quantitative explanatory research design using secondary data obtained from the financial statements of textile and garment companies listed on the IDX. The population consists of 20 companies, with 18 companies meeting the purposive sampling criteria, resulting in 54 balanced panel observations over the 2021–2023 period. Panel data regression analysis was conducted using the Fixed Effects Model (FEM). Liquidity is measured by the Current Ratio (CR), leverage by the Debt-to-Equity Ratio (DER), and financial distress by the Altman Z″-Score. Research Results: The results indicate that liquidity, as measured by the Current Ratio, does not have a statistically significant effect on financial distress (β = 0.181983; p = 0.2593). In contrast, leverage, as measured by the Debt-to-Equity Ratio, has a statistically significant negative effect on financial distress (β = −0.329680; p = 0.0116). Simultaneously, liquidity and leverage have a statistically significant effect on financial distress, as indicated by an F-statistic of 52.35342 and a probability value of 0.000000. The model has an R² of 0.966949, indicating that the independent variables and the fixed effects explain approximately 96.69% of the variation in financial distress. Implication of Research Results: The findings suggest that liquidity alone may not adequately capture financial distress risk in the textile and garment industry, particularly because current assets may include substantial inventories that are not immediately convertible into cash. The significant relationship between leverage and financial distress highlights the importance of capital structure management. Companies should carefully manage their debt and financing structures, while investors and creditors should consider leverage trends and comprehensive financial indicators when assessing corporate financial risk.