Factors Affecting Financial Distress in State-Owned Enterprises: Evidence from Indonesia

This research aims to analyze the key factors that influence BUMN financial distress and determine a sample of 31 companies from a population of 44 BUMN that have the potential to experience financial distress. The results of the statistical analysis show that the variables that have a significant influence on financial distress are working capital, retained earnings, government equity, earnings before interest and taxes, and earnings management. Meanwhile, other variables that do not have a significant effect on financial distress are capital expenditure, contribution margin, government subsidies, operational efficiency, and cash flow from operations. The implication of this research is that government policy, as a shareholder, is needed to prioritize handling key variables that have a significant impact on BUMN financial distress. Government policy support is needed to meet working capital needs to fulfill company operations, encourage an increase in retained earnings as a source of cheap and permanent internal funds, and support from government equity not only for investment but also for settling long-term debt that is due. Encourage improvements in tariffs and increase the number of subsidies so that increasing earnings before interest and taxes will increase the level of financial distress for BUMN. Meanwhile, policies in the practice of accrual earnings management should be minimized or eliminated because earnings management practices like this tend to reduce the level of financial distress and are constrained by tariff policies because they are considered capable of achieving a certain level of profitability. The implications of this research require government policy, as the majority shareholder, to support improvements in cost structures and tariff structures so that State-Owned Enterprises can manage finances independently and avoid potential financial distress. Management policies are needed to prioritize variables that have a significant impact on the financial distress of State-Owned Enterprises.