FINANCIAL RISK: THE INTERPLAY OF LEVERAGE, INTANGIBLES, AND EARNINGS MANAGEMENT

Chandra Rony Lumbantobing; Iriyadi Iriyadi; Ratih Puspitasari; Dewi Sarifah Tullah; Jan Febrian

doi:10.37641/riset.v7i2.2623

Authors

Chandra Rony Lumbantobing Institute of Business and Informatics Kesatuan
Iriyadi Iriyadi Institute of Business and Informatics Kesatuan
Ratih Puspitasari Institute of Business and Informatics Kesatuan
Dewi Sarifah Tullah Institute of Business and Informatics Kesatuan
Jan Febrian Institute of Business and Informatics Kesatuan

DOI:

https://doi.org/10.37641/riset.v7i2.2623

Keywords:

Leverage, Intangible Assets, Financial Risk Tolerance, Earnings Management, Financial Distress

Abstract

Manufacturing companies face financial risks that may lead to financial distress, primarily due to high leverage and the uncertainty of intangible asset values. This study uses earnings management as a moderating variable to investigate how leverage and intangible assets affect financial risk. Using a purposive sample technique, the study uses secondary data from the 2019–2023 financial statements of industrial businesses registered on the Indonesia Stock Exchange (IDX). Data analysis is conducted through panel data regression, employing the Zmijewski model to measure financial risk. The findings reveal that leverage positively affects financial risk, supporting agency theory, which suggests that high debt levels increase financial pressure on firms.

In contrast, intangible assets do not significantly influence financial risk. Earnings management reduces financial risk and weakens the impact of leverage, but does not significantly moderate the relationship between intangible assets and financial risk. The study concludes that companies must manage and leverage prudently and optimize using intangible assets to mitigate financial risk. From a practical perspective, investors and creditors should consider earnings management practices when assessing a company's risk profile.

Downloads

Download data is not yet available.

References

Agustia, D., Asyik, N. F., & Midiantari, N. (2021). Intellectual Capital on Financial Performance and Sustainable Growth. EKUITAS (Jurnal Ekonomi Dan Keuangan), 5(2), 159–179. https://doi.org/10.24034/j25485024.y2021.v5.i2.4744

Agustia, D., Muhammad, N. P. A., & Permatasari, Y. (2020). Earnings Management, Business Strategy, and Bankruptcy Risk: Evidence from Indonesia. Heliyon, 6(2), 1–9. https://doi.org/10.1016/j.heliyon.2020.e03317

Albert, M. G., & Maudos, J. (2022). The Importance of Intangible Assets in Regional Economic Growth: A Growth Accounting Approach. The Annals of Regional Science, 69(2), 361–390. https://doi.org/10.1007/s00168-022-01138-6

Ali, J., Tahira, Y., Amir, M., Ullah, F., Tahir, M., Shah, W., Khan, I., & Tariq, S. (2022). Leverage, Ownership Structure and Firm Performance. Journal of Financial Risk Management, 11(1), 41–65. https://doi.org/10.4236/jfrm.2022.111002

Almubarak, W. I., Chebbi, K., & Ammer, M. A. (2023). Unveiling The Connection among ESG, Earnings Management, and Financial Distress: Insights from an Emerging Market. Sustainability, 15(16), 1–23. https://doi.org/10.3390/su151612348

Ambarwati, K. F., & Sriwardany. (2022). Comparative Analysis of The Springate Model and The Zmijewski Model in Measuring Corporate Health Level at PT. Bintang Persada Satelit. Indonesian Journal of Business Analytics, 1(2), 261–270. https://doi.org/10.55927/ijba.v1i2.30

Apsari, C. M., Pristiana, U., & Brahmayanti, I. A. S. (2024). Comparative Accuracy Analysis of Altman Z-Score, Springate, and Zmijewski Models for Predicting Financial Distress in Cigarette Sector Companies. Indonesian Journal of Innovation Multidisipliner Research, 2(3), 200–211. https://doi.org/10.69693/ijim.v2i3.171

Barker, R., Lennard, A., Penman, S., & Teixeira, A. (2022). Accounting for Intangible Assets: Suggested Solutions. Accounting and Business Research, 52(6), 601–630. https://doi.org/10.1080/00014788.2021.1938963

Brunnermeier, M., & Krishnamurthy, A. (2020). Corporate Debt Overhang and Credit Policy (Brookings Papers on Economic Activity). https://www.brookings.edu/articles/corporate-debt-overhang-and-credit-policy/

Chu, Y. (2016). Shareholder-Creditor Conflict and Payout Policy: Evidence from Mergers between Lenders and Shareholders (Forthcoming, Review of Financial Studies). https://doi.org/10.2139/ssrn.2726315

Desiyanti, O., Soedarmo, W., Chandra, K., & Kusnadi, K. (2019). The Effect of Financial Ratios to Financial Distress Using Altman Z-Score Method in Real Estate Companies Listed in Indonesia Stock Exchange Period 2014 - 2018. Business and Entrepreneurial Review, 19(2), 119–136. https://doi.org/10.25105/ber.v19i2.5699

Dirman, A. (2020). Financial Distress: The Impact of Profitability, Liquidity, Leverage, Firm Size, and Free Cash Flow. International Journal of Business, Economics and Law, 22(1), 17–25. https://ijbel.com/wp-content/uploads/2020/08/IJBEL22_205.pdf

Durana, P., Michalkova, L., Privara, A., Marousek, J., & Tumpach, M. (2021). Does The Life Cycle Affect Earnings Management and Bankruptcy? Oeconomia Copernicana, 12(2), 425–461. https://doi.org/10.24136/oc.2021.015

Farooq, M., Noor, A., Qureshi, S. F., & Bhutta, Z. M. (2021). Indirect Financial Distress Costs in Non-Financial Firms: Evidence from an Emerging Market. Pacific Accounting Review, 33(4), 417–434. https://doi.org/10.1108/PAR-09-2020-0127

Fauziah, S. N., & Herawaty, V. (2023). The Influence of Business Strategy, Market Effect, and Profit Management on Bankruptcy Risk During The COVID-19 Pandemic as Moderating Variables. Jurnal Ekonomi Trisakti, 3(1), 1209–1218. https://doi.org/10.25105/jet.v3i1.16070

Febriana, A. M., & Triyono, T. (2024). The Influence of Capital Structure, Tangible Assets, Intangible Assets, and Sales Growth on Company Value with Financial Performance as an Intervening Variable (Empirical Study on Properties and Real Estate Companies Listed on The Indonesian Stock Exchang. Media Mahardhika, 22(3), 503–521. https://doi.org/10.29062/mahardika.v22i3.947

Gamayuni, R. R. (2015). The Effect Of Intangible Asset, Financial Performance And Financial Policies On The Firm Value. International Journal of Scientific & Technology Research, 4(1), 202–212. http://repository.lppm.unila.ac.id/1439/1/The-Effect-Of-Intangible-Asset-Financial-Performance-And-Financial-Policies-On-The-Firm-Value.pdf

Gunarathna, V. (2015). How Does Financial Leverage Affect Financial Risk? An Empirical Study in Sri Lanka. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3447293

Habib, A., Costa, M. D’, Huang, H. J., Bhuiyan, M. B. U., & Sun, L. (2020). Determinants and Consequences of Financial Distress: Review of The Empirical Literature. Accounting & Finance, 60(S1), 1023–1075. https://doi.org/10.1111/acfi.12400

Kurnia, B., & Mulyati, Y. (2023). The Effect of Free Cash Flow and Financial Distress on Earnings Management in Infrastructure, Utilities, and Transportation Companies Listed on The Indonesia Stock Exchange. Owner, 7(2), 1596–1611. https://doi.org/10.33395/owner.v7i2.1395

Lavopa, A., & Donnelly, C. (2023). Socioeconomic Resilience During The COVID-19 Pandemic. The Role of Industrial Capabilities. Structural Change and Economic Dynamics, 67, 44–57. https://doi.org/10.1016/j.strueco.2023.06.004

Liu, Y., Cheng, P., OuYang, Z., & Wang, A. (2019). Information Asymmetry and Investor Valuations of Initial Public Offerings: Two Dimensions of Organizational Reputation as Stock Market Signals. Management and Organization Review, 16(4). https://www.cambridge.org/core/journals/management-and-organization-review/article/abs/information-asymmetry-and-investor-valuations-of-initial-public-offerings-two-dimensions-of-organizational-reputation-as-stock-market-signals/E40E10EF2D1A8649BDE7FAE85D01DB09

Lubis, N. W. (2022). Resource Based View (RBV) in Improving Company Strategic Capacity. Research Horizon, 2(6), 587–596. https://doi.org/10.54518/rh.2.6.2022.587-596

Lugina, E. J., Mwakalobo, A. B. S., & Lwesya, F. (2022). Effects of Industrialization on Tanzania’s Economic Growth: A Case of Manufacturing Sector. Future Business Journal, 8(62), 1–11. https://doi.org/10.1186/s43093-022-00177-x

Meryana, & Setiany, E. (2021). The Effect of Investment, Free Cash Flow, Earnings Management, and Interest Coverage Ratio on Financial Distress. Journal of Social Science, 2(1), 64–69. https://doi.org/10.46799/jss.v2i1.86

Napiajo, Beananda, S. R., & Serini, A. (2023). Profit Management in Mining Companies Listed on The Indonesia Stock Exchange in the 2020-2022 Period Through Profitability, Leverage, and Company Size. Jurnal Ekonomi STIEP, 8(2), 88–95. https://doi.org/10.54526/jes.v8i2.199

Nasir, M. J. A. (2021). The Effect of Leverage, Sales Growth, and Company Size on Profitability. Buletin Ekonomi: Manajemen, Ekonomi Pembangunan, Akuntansi, 18(2), 261–286. https://doi.org/10.31315/be.v18i2.5642

Nerotumilena, T., & Winarna, J. (2024). Altman Z-Score and Zmijewski X-Score Models on Performance to Assess the Bankruptcy Risk of Mining Companies on IDX Indonesia 2018-2022. JBTI : Jurnal Bisnis : Teori Dan Implementasi, 15(3), 273–287. https://doi.org/10.18196/jbti.v15i3.24281

Nguyen, T. T., & Kien, V. D. (2022). Leverage and Bankruptcy Risk - Evidence from Maturity Structure of Debt: An Empirical Study from Vietnam. The Journal of Asian Finance, Economics and Business, 9(1), 133–142. https://koreascience.kr/article/JAKO202200567727471.page

Nini, N., Patrisia, D., & Nurofik, A. (2020). The Effect of Capital Structure on Company Financial Performance. Jurnal Economia, 16(2), 173–183. https://doi.org/10.21831/economia.v16i2.30661

Onsongo, S. K., Muathe, S. M. A., & Mwangi, L. W. (2020). Financial Risk and Financial Performance: Evidence and Insights from Commercial and Services Listed Companies in Nairobi Securities Exchange, Kenya. International Journal of Financial Studies, 8(51), 1–15. https://doi.org/10.3390/ijfs8030051

Pangi, W. B., & Dewi, R. (2023). The Influence of Human Capital, Intangible Assets, Diversification, and Information Technology Investment on Financial Distress in The Covid-19 Situation. Jurnal Informatika Ekonomi Bisnis, 5(1), 103–110. https://doi.org/10.37034/infeb.v5i1.195

Pradana, R. W., & Chalid, D. A. (2023). Intellectual Capital and Firm’s Financial Distress Risk: Evidence from Developed and Developing Countries. Journal of Theory and Applied Management, 16(2), 309–320. https://doi.org/10.20473/jmtt.v16i2.45672

Prakoso, N. A., Harahap, M. N., & Nasution, R. (2024). Effect of Current Ratio, Debt-to-Equity Ratio, Return on Assets, and Company Size on The Risk of Business Failure (Empirical Study of Food and Beverage Companies Listed on The Indonesia Stock Exchange in 2019-2021). Jurnal Ilmiah Wahana Pendidikan, 10(3), 552–268. https://jurnal.peneliti.net/index.php/JIWP/article/view/6145

Prasetya, G., & Muid, D. (2022). The Effect of Profitability and Leverage on Tax Avoidance. Diponegoro Journal of Accounting, 11(1), 1–6. https://ejournal3.undip.ac.id/index.php/accounting/article/view/32960/26325

Putra, A. S., & Satria, H. (2022). Accounting Conservatism: Financial Distress and Debt to Equity Ratio. Jurnal Ilmiah Akuntansi Dan Finansial Indonesia, 6(1), 1–12. https://doi.org/10.31629/jiafi.v6i1.4644

Putri, D. M. A., Cantika, S. T., Ningtyas, R. C., & Leon, F. M. (2021). Determining Factors in The Indirect Financial Distress Cost in Companies in The Basic and Chemical Industry Sector Listed on The Indonesia Stock Exchange. International Journal of Innovative Science and ResearchTechnology, 6(12), 1051–1058. https://www.ijisrt.com/assets/upload/files/IJISRT21DEC630_(1).pdf

Putri, Z. A., Eca, E., Putriani, H., Fiana, F., & Fadillah, B. (2024). Financial Transparency and Corporate Performance: Uncovering The Relationship Between Earnings Management and Corporate Value. Prosiding Seminar Teknologi, Akuntansi, Bisnis, Ekonomi, Dan Komunitas, 4.

Rachmawati, Y., & Sulbahri, R. A. (2020). Comparative Analysis of The Springate and Zmijewski Models in Predicting Bankruptcy in Food and Beverage Companies Listed on The Indonesian Stock Exchange in 2018. Jurnal Keuangan Dan Bisnis, 18(1), 147–158. https://doi.org/10.32524/jkb.v18i1.660

Rahma, N. H., & Dillak, V. J. (2021). The Influence of Capital Structure, Company Size, Sales Growth and Intangible Assets on Financial Distress. Jurnal Ilmiah Manajemen, Ekonomi, & Akuntansi (MEA), 5(3), 378–395. https://journal.stiemb.ac.id/index.php/mea/article/view/1480

Rahman, M. M., Saima, F. N., & Jahan, K. (2020). The Impact of Financial Leverage on Firm’s Profitability: An Empirical Evidence from Listed Textile Firms of Bangladesh. Journal of Business Economics and Environmental Studies, 10(2), 23–31. https://doi.org/10.13106/jbees.2020.vol10.no2.23

Rahmani, H. F. (2022). Drivers of Earnings Management in Terms of Company Size and Financial Distress. Jurnal Ekonomi Bisnis, Manajemen Dan Akuntansi (JEBMA), 2(2), 55–59. https://doi.org/10.47709/jebma.v2i2.1832

Revo. (2024, September 12). Indonesian Manufacturing Industry in Shattered: Many Companies Go Bankrupt, Layoffs Flood. CNBC Indonesia. https://www.cnbcindonesia.com/research/20240912122027-128-571301/manufaktur-ri-hancur-lebur-perusahaan-banyak-bangkrut-banjir-phk

Riyani, B. S. L., & Putra, R. J. (2024). The Influence of Intangible Assets and Research Activities on Company Performance and Their Impact on Stock Price Movements: A Study of Manufacturing Companies Listed on The IDX. Al-Kharaj: Jurnal Ekonomi, Keuangan & Bisnis Syariah, 6(8), 5992–6005. https://doi.org/10.47467/alkharaj.v6i8.4341

Sari, M., & Diana, H. (2020). Financial Ratio Analysis to Predict Financial Distress Conditions of Pulp and Paper Companies Listed on The Indonesia Stock Exchange in 2012-2017 with The Altman Z-Score Model. Research in Accounting Journal, 1(1), 32–48. https://journal.yrpipku.com/index.php/raj/article/view/32/19

Sayidah, N., Assagaf, A., & Faiz, Z. (2020). Does Earning Management Affect Financial Distress? Evidence from State-Owned Enterprises in Indonesia. Cogent Business & Management, 7(1832826), 1–14. https://doi.org/10.1080/23311975.2020.1832826

Schwartz, A., Yavorsky, N. D., & Osborn, M. (2024). Trends in Large Corporate Bankruptcy and Financial Distress. https://www.cornerstone.com/insights/reports/trends-in-large-corporate-bankruptcy-and-financial-distress/

Scott, W. R., & O’Brien, Pa. C. (2020). Financial Accounting Theory (8th ed.). Pearson. https://digilib.perbanas.id/index.php?p=show_detail&id=1127991&keywords=

Seprianti, D., Lestari, F. R., Putri, G. F., Yuni, G. P. D., & Leli, I. (2023). Analysis of Intangible Assets in The Tanah Datar District Health Office. Al Dzahab, 4(2), 133–142. https://doi.org/10.32939/dhb.v4i2.2791

Setyoningrum, R., Wardoyo, D. U., Amin, A. S., & Sabilla, R. (2022). The Effect of Intangible Assets and Liquidity on Financial Distress (in Industrial Sector Companies Listed on The Indonesia Stock Exchange in 2018-2020). Jurnal Publikasi Ekonomi Dan Akuntansi, 2(2), 172–186. https://doi.org/10.51903/jupea.v2i2.327

Sihotang, L. Y., & Muliyani. (2024). The Influence of Intangible Assets, Sales Growth, and Operating Cash Flow on Financial Distress. Musytari : Neraca Manajemen, Akuntansi, Dan Ekonomi, 7(3), 1–14. https://ejournal.warunayama.org/index.php/musytarineraca/article/view/4924

Soetardjo, M. N., & Wijaya, M. A. (2024). The Effect of Tax Burden, Intangible Assets and Audit Quality on Transfer Pricing Decisions. Klabat Accounting Review, 5(1), 24–46. https://doi.org/10.60090/kar.v5i1.1049.24-46

Sunartoputra, D., Atma, P., & Fathurrachman, G. (2023). The Indonesian Insolvency and Restructuring Landscape. PWC Indonesia. https://www.pwc.com/id/en/pwc-publications/services-publications/legal-publications/the-indonesian-insolvency-and-restructuring-landscape.html

Susanti, N., Latifa, I., & Sunarsi, D. (2020). The Effects of Profitability, Leverage, and Liquidity on Financial Distress on Retail Companies Listed on Indonesian Stock Exchange. Jurnal Ilmiah Ilmu Administrasi Publik, 10(1), 45–52. https://doi.org/10.26858/jiap.v10i1.13568

Thamlim, W., & Mulyani, S. D. (2023). The Impact of Information Asymmetry, ESOP, and Audit Quality on Earnings Management with Financial Difficulties as a Moderating Variable. Media Riset Akuntansi, Auditing & Informasi, 23(2), 353–374. https://doi.org/10.25105/mraai.v23i2.17187

Tutliha, Y. S., & Rahayu, M. (2019). The Influence of Intangible Assets, Operating Cash Flow and Leverage on Financial Distress. IKRA-ITH EKONOMIKA, 2(1), 95–103. https://journals.upi-yai.ac.id/index.php/IKRAITH-EKONOMIKA/article/view/425

United Nations Industrial Development Organization. (2020). Impact Assessment of Covid-19 on Indonesia’s Manufacturing Firms. https://www.unido.org/sites/default/files/unido-publications/2023-02/impact-assessment-of-covid-19-on-indonesias-manufacturing-firms-en.pdf

Widanastiti, S. A., & Rahayu, P. (2020). The Influence of Capital Structure, Asset Structure and Ownership Structure on Financial Risk in Property and Real Estate Companies Listed on The Indonesian Stock Exchange in The 2015-2017 Period. JCA (Jurnal Cendekia Akuntansi), 1(1), 9–17. https://doi.org/10.32503/akuntansi.v1i1.1061

Yudha, A. Z., Abustam, A., & Tenrigau, A. P. (2025). Revealing Bankruptcy Prediction: Accuracy Comparison of Altman, Springate, and Zmijewski Models on PT Garuda Indonesia. Journal of Economic and Social Science (JoESS), 2(1), 181–186. https://andipandangaijournal.com/index.php/JoESS/article/view/35/43

Zelalem, B. A., & Abebe, A. A. (2022). Does Intangible Assets Affect The Financial Performance and Policy of Commercial Banks’ in The Emerging Market? PLOS ONE, 17(8), e0272018. https://doi.org/10.1371/journal.pone.0272018

Zhu, L., Li, M., & Metawa, N. (2021). Financial Risk Evaluation Z-Score Model for Intelligent IoT-based Enterprises. Information Processing & Management, 58(6), 102692. https://doi.org/10.1016/j.ipm.2021.102692

Zolotoy, L., O’Sullivan, D., Martin, G. P., & Wiseman, R. M. (2021). Stakeholder Agency Relationships: CEO Stock Options and Corporate Tax Avoidance. Journal of Management Studies, 58(3), 782–814. https://doi.org/10.1111/joms.12623