Analysis of Factors that Influence the Success of Turnaround in Companies that Experience Financial Distress

Oct 13, 2025 by miodeya.com 5 views

Analysis of Factors that Influence the Success of Turnaround in Companies that Experience Financial Distress

Introduction

Every company strives to reach the pinnacle of success, but the business journey is not always smooth-sailing. Sometimes, companies face challenging situations, including financial crises that threaten the sustainability of their business. At this point, the company must be able to rise and undergo a turnaround, which is the process of recovery and transformation to re-achieve profitability and stability. This study aims to explore the key factors that influence the success of turnaround in manufacturing companies listed on the Indonesia Stock Exchange during the period 2009 to 2013.

Background of the Study

Financial distress is a common phenomenon in the business world, and companies that experience it must be able to adapt and transform to survive. The process of turnaround is crucial in this context, as it enables companies to recover from financial difficulties and achieve long-term success. However, the success of turnaround is not guaranteed, and various factors can influence its outcome. This study aims to identify the key factors that contribute to the success of turnaround in manufacturing companies.

Methodology

This study involved 84 companies selected by the purposive sampling method from the population of 145 manufacturing companies listed on the Indonesia Stock Exchange. The study used logistic regression analysis to test the effect of six factors on the success of turnaround. The six factors examined were:

Firm size (firm size): The scale of the company, seen from the total assets and number of employees.
Profitability: The company's ability to generate profits, measured by profitability ratios such as Return on Assets (ROA) and Return on Equity (ROE).
Free assets: The number of assets that are not used in company operations, which can be sold to increase liquidity.
Reduction of assets: Strategies for selling or reducing assets that are not needed for operational efficiency.
Cost Reduction (Expenses Retrenchment): Strategies to cut operational costs to increase profitability.
Tendency of the company's health level (Δseverture): The company's financial health, measured by its Z-Score.

Results

The results of the analysis showed that profitability, the tendency of the company's health level (Δseverture), and free assets (free assets) partially affect the company's ability to achieve a successful turnaround. Companies that have high profitability, a tendency to increase Z-Score, and free assets that can be sold have a greater chance of rising from the crisis. On the other hand, company size, Reduction of assets, and Reduction of costs did not partially prove to have an effect on the success of turnaround. This shows that the size of the company, asset reduction strategies, and cost reduction is not always a determinant of success turnaround.

Discussion

The G test results simultaneously showed that all variables that are tested, although not all partially influence, together can influence the company's ability to achieve successful turnaround. That is, the success of turnaround is the result of a combination of various factors and strategies applied by the company. This study has important implications for stakeholders, such as company management, investors, and regulators. Companies that experience financial difficulties must understand the factors revealed in this study and try to increase profitability, improve financial health, and utilize free assets.

Implications

This study provides a deeper understanding of the factors that influence the success of turnaround. By understanding these key factors, companies can increase opportunities to rise from the crisis and achieve long-term success. Investors can use the results of this study as a reference in assessing the chances of success turnaround the company they invest. While regulators can formulate policies that support the company's turnaround efforts, such as providing funding access or incentives for companies that carry out operational efficiency.

Conclusion

In conclusion, this study reveals that the success of turnaround is influenced by a combination of various factors, including profitability, financial health, and the utilization of free assets. Companies that experience financial difficulties must understand these factors and apply strategies to increase their chances of success. This study provides valuable insights for stakeholders, including company management, investors, and regulators, and contributes to the body of knowledge on turnaround in companies that experience financial distress.

Limitations

This study has several limitations, including the use of a specific sample of companies and the examination of a limited number of factors. Future studies can build on this research by examining a larger sample of companies and exploring additional factors that influence the success of turnaround.

Future Research Directions

Future research can explore the following directions:

Examining the role of leadership: The study can investigate the role of leadership in the success of turnaround, including the characteristics of effective leaders and the strategies they employ.
Investigating the impact of industry: The study can examine the impact of industry on the success of turnaround, including the differences between industries and the factors that influence success.
Analyzing the effect of government policies: The study can investigate the effect of government policies on the success of turnaround, including the impact of regulations and incentives on company performance.

By exploring these directions, future research can provide a more comprehensive understanding of the factors that influence the success of turnaround and contribute to the development of effective strategies for companies that experience financial distress.
Q&A: Analysis of Factors that Influence the Success of Turnaround in Companies that Experience Financial Distress

Introduction

In our previous article, we explored the key factors that influence the success of turnaround in companies that experience financial distress. In this Q&A article, we will answer some of the most frequently asked questions related to this topic.

Q1: What is a turnaround, and why is it important for companies that experience financial distress?

A1: A turnaround is the process of recovery and transformation that enables a company to re-achieve profitability and stability after experiencing financial difficulties. It is a crucial process for companies that experience financial distress, as it can help them survive and thrive in the long term.

Q2: What are the key factors that influence the success of turnaround?

A2: The key factors that influence the success of turnaround include:

Profitability: The company's ability to generate profits, measured by profitability ratios such as Return on Assets (ROA) and Return on Equity (ROE).
Financial health: The company's financial health, measured by its Z-Score.
Free assets: The number of assets that are not used in company operations, which can be sold to increase liquidity.
Leadership: The characteristics and strategies of effective leaders can play a crucial role in the success of turnaround.
Industry: The industry in which the company operates can also influence the success of turnaround.

Q3: How can companies increase their chances of success during a turnaround?

A3: Companies can increase their chances of success during a turnaround by:

Improving profitability: By increasing revenue and reducing costs, companies can improve their profitability and increase their chances of success.
Enhancing financial health: By improving their financial health, companies can reduce their risk of bankruptcy and increase their chances of success.
Utilizing free assets: By selling or using free assets, companies can increase their liquidity and reduce their debt.
Developing effective leadership: By developing effective leadership, companies can improve their decision-making and increase their chances of success.
Adapting to industry changes: By adapting to changes in their industry, companies can stay competitive and increase their chances of success.

Q4: What role do investors play in the turnaround process?

A4: Investors play a crucial role in the turnaround process by:

Providing funding: Investors can provide funding to companies that are experiencing financial difficulties, enabling them to undergo a turnaround.
Assessing risk: Investors can assess the risk of investing in a company that is undergoing a turnaround, and make informed decisions about their investment.
Providing guidance: Investors can provide guidance and support to companies that are undergoing a turnaround, helping them to make informed decisions and improve their chances of success.

Q5: What policies can regulators implement to support the turnaround process?

A5: Regulators can implement policies to support the turnaround process by:

Providing funding: Regulators can provide funding to companies that are experiencing financial difficulties, enabling them to undergo a turnaround.
Reducing regulatory burdens: Regulators can reduce regulatory burdens on companies that are undergoing a turnaround, enabling them to focus on their core business and improve their chances of success.
Providing incentives: Regulators can provide incentives to companies that are undergoing a turnaround, such as tax breaks or other forms of support.

Conclusion

In conclusion, the success of turnaround is influenced by a combination of various factors, including profitability, financial health, leadership, industry, and regulatory policies. By understanding these factors and implementing effective strategies, companies can increase their chances of success during a turnaround.