The Efectiveness Of Ohlson's O-Score To Predict Financial Distress Of Go-Public Firms In Indonesia For The Period Of 2004-2005

Abstract

Nugraha, Aprianto (2007) "The effectiveness of Ohlson's O-Score to predict financial distress of go-public firms in Indonesia for the period of 2004-2005" Yogyakarta: Management Department, International Program, Faculty of Economics, Universitas Islam Indonesia The study of predicting financial distress or bankruptcy has already been conducted from many years ago and in different countries. The result of these researches varied depends on the researcher's method and the economical and political condition of the country where the research is conducted. This study is a popular study because every company in each and every country in the world has the risk of experiencing financial distress and bankruptcy. That is why that the research about predicting financial distress and bankruptcy is very important. This research is conducted with the basis of trying to provide additional information about the prediction tools that can be used in Indonesia. In Indonesia, the study of predicting financial distress and bankruptcy is also popular. The most popular prediction tool in Indonesia is Altman's (1968) Z-Score. This tool has its weaknesses and strengths. The weaknesses ofthis tool can be eliminated if we use Ohlson's (1980) O-Score. That is why this research used O-Score as its data analysis technique. This research uses the data of published firm's financial statement in the period of 2004-2005 in Indonesian Capital Market Directory (ICMD). The sampling technique is purposive sampling means that the firms must qualify to a certain criteria in order to be used in the research. The criteria for the distressed firms are delisted from Jakarta Stock Exchange because of financial distress, have loss in three consecutive years (2003-2005), and have loss of more than 75% of its paid-in capital in 2004 and/or 2005. The criterion for solvent firms is having no loss in three consecutive years (2003-2005). The result of the research shows that Ohlson's (1980) O-Score can be used in Indonesia. The result of the predictability of the overall variables also exceeds the original research. In Ohlson's (1980) research, the overall predictability of the variables are 96.3% while this research shows 100% correct for overall variable.