Predicting Financial Distress in Infrastructure Companies Using Cash Ratios, Asset Profitability, and Managerial Agency Costs

Abstract

Purpose – This study aims to examine and analyze the relationship between Cash Ratio, Return on Asset, and Managerial Agency Cost on Financial Distress.

Design/methodology/approach – This study uses quantitative data. The sample used in this research consists of infrastructure sector companies listed on the Indonesia Stock Exchange (IDX) during the 2022–2024 period, selected using purposive sampling with specific criteria to ensure relevance to the research objectives. The analysis technique employed to test the hypotheses is multiple regression analysis using E-Views 9 software.

Findings – The results of this study indicate that the Cash Ratio variable has a positive and statistically significant effect on Financial Distress. This finding suggests that higher cash holdings in infrastructure sector companies during the post-pandemic period (2022–2024) may reflect uncertainty in investment opportunities, which paradoxically increases the risk of distress. The Return on Assets variable has a negative and statistically insignificant effect on Financial Distress, indicating that profitability alone does not provide sufficient protection against financial difficulties in this context. Meanwhile, the Managerial Agency Cost variable has a positive and statistically insignificant effect on Financial Distress, implying that inefficiencies in managerial decision-making may contribute to distress but are not decisive.

Research limitations/implications – This research is limited to the 2022–2024 observation period and infrastructure sector companies listed on the Indonesia Stock Exchange (IDX), and examines cash ratio, return on assets, and managerial agency costs as determinants of corporate financial distress. The practical implication of this research is that the findings may serve as a reference for management and investors in assessing and anticipating the risk of financial distress in infrastructure sector companies.

 JEL: G30, G32, G33