Does neglecting the instruments of financial failure play a role in the bankruptcy of companies?

Financial performance and corporate governance play an important role in financial distress in the mining sector, which is one of the most significant contributors to the Indonesian economy. This study aims to analyze the effect of corporate characteristics on financial distress (FD), which is moderated by corporate governance (audit quality), and uses the controlling variables (inflation rate and GDP). The study uses data from audited financial statements from mining sector in the Indonesia Stock Exchange for the period 2013–2018. Since the dependent variable (FD) is dichotomous, this study used a binary logistic regression model, as it is the case in many studies regarding the probability of bankruptcy filing. In line with the current study and some previous studies, leverage, efficiency (activity), market-to-book value, audit quality, and GDP affect the probability of financial distress significantly. Only liquidity and inflation do not impact FD. Besides, the moderating audit quality weakens the effect of liquidity and PBV; otherwise, it strengthens leverage and efficiency in predicting financial distress. As for managerial implications, this study concludes that corporate performance, corporate governance, and macro-risk factors affect the probability of financial distress. The authors suggest that mining firms need to pay attention to corporate governance and should watch the economic condition for business sustainability.

Financial distress is a matter of concern in the recent period as Vietnam gradually enters global markets. This paper aims to examine the factors of Altman Z-score to detect the financial distress of Vietnamese listed companies. The authors use a sample of 30 delisted companies due to financial problems and 30 listed companies on the Vietnamese stock market from 2015 to 2018. They employ Independence Samples T-test to test the research model. It is found that there are significant differences in the factors of Altman Z-score between the group of listed companies and the group of delisted companies. Further analyses using subsamples of delisted companies show that the factors of Altman Z-score are also statistically different between companies with a low level of financial distress and those with a high level of financial distress. Based on the results, there are some suggestions to assist practitioners and the State Securities Commission in detecting, preventing, and strictly controlling financially distressed businesses. These results also enable users of financial statements to make more rational economic decisions accordingly.

Previous event studies find that going concern opinions (GCOs) convey significant information to the market when the audit reports appear to be unexpected. Using the value relevance method, this paper examines the differential impact of expected and unexpected going concern opinions on the market value of US firms for the 2000–2006 time period. The results suggest that while both firms receiving expected and unexpected GCOs suffer a drop in their average market value, the decrease is larger in the case of firms with unexpected GCOs. It is also observed that the market tends to shift the weight they place on earnings to the book value of equity in valuing firms with unexpected GCOs. Specifically, the decrease in the pricing multiple of earnings is larger for the case of unexpected GCOs. This result suggests that GCOs are more informative when they are unexpected. The study complements existing work by exploring whether expected GCOs have any differential valuation impact than unexpected GCOs instead of looking at the informativeness of GCOs alone.