Financial Ratios and Probability of Default by Using the KMV-Merton Method in the Non-Financial Sector listed on the Indonesia Stock Exchange

D. Malasari; M. Adam; . Yuliani; A. Hanafi

doi:10.26794/2587-5671-2020-24-1-6-13

Financial Ratios and Probability of Default by Using the KMV-Merton Method in the Non-Financial Sector listed on the Indonesia Stock Exchange

D. Malasari, M. Adam, . Yuliani, A. Hanafi

https://doi.org/10.26794/2587-5671-2020-24-1-6-13

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Abstract

This study aims to analyze the predictions of the default probability in the non-financial sector of the Indonesia Stock Exchange and the mutual influence between financial ratios. The KMV–Merton method was used for the calculations. The study was conducted on the example of data from 18 companies listed on the Indonesia Stock Exchange. The scientific materials and documentation were analyzed with the help of the EViews. The authors made the following

conclusions: Return on Equity (ROE) has no effect on the probability of default; Current Ratio (CR) has no effect on the probability of default; Debt to Equity Ratio (DER) has a positive effect on the probability of default; Total Assets Turnover (TAT) has a negative effect on the probability of default.

Keywords

probability of default, KMV–Merton method, financial ratio, Indonesia Stock Exchange

JEL: G23, G32

About the Authors

D. Malasari

Sriwijaya University
Russian Federation
Dessy Malasari — Graduate student, Faculty of Economics

M. Adam

Sriwijaya University
Russian Federation
Mohamad Adam — Professor, Faculty of Economics

. Yuliani

Sriwijaya University
Russian Federation
Yuliani — Doctor, Faculty of Economics

A. Hanafi

Sriwijaya University
Russian Federation
Agustina Hanafi — Doctor, Faculty of Economics

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Review

For citations:

Malasari D., Adam M., Yuliani , Hanafi A. Financial Ratios and Probability of Default by Using the KMV-Merton Method in the Non-Financial Sector listed on the Indonesia Stock Exchange. Finance: Theory and Practice. 2020;24(1):6-13. https://doi.org/10.26794/2587-5671-2020-24-1-6-13

This work is licensed under a Creative Commons Attribution 4.0 License.

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Finance: Theory and Practice