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FORMOSA NEWS - Surabaya - High Debt Raises Financial Risk in Indonesia’s Textile Firms, Assets Offer Stability. A 2026 study by Icha Amelia and Eni Wuryani from Universitas Negeri Surabaya reveals that high corporate debt significantly increases the risk of financial distress in Indonesia’s textile and garment companies, while strong asset structures help reduce that risk. The findings, published in the Formosa Journal of Applied Sciences, highlight critical financial strategies for one of Indonesia’s most labor-intensive and economically vital industries. The research focuses on textile and garment firms listed on the Indonesia Stock Exchange between 2020 and 2024. This period reflects a time of intense pressure on the sector, making the study highly relevant for business leaders, investors, and policymakers concerned with industrial resilience and financial stability.
Industry Under Pressure
Indonesia’s textile and garment industry plays a key role in the national economy, contributing to gross domestic product and employing a large workforce. However, the sector has faced mounting challenges in recent years. Rising imports of textile products, shifting consumer preferences toward fast fashion and secondhand clothing, and declining purchasing power have weakened domestic producers. Export demand has also slowed, creating further strain. One of the most visible impacts was the 2024 bankruptcy of PT Sri Rejeki Isman Tbk, a major textile company that failed to meet its debt obligations after years of declining sales and heavy financial losses. This case underscores how financial instability can escalate into corporate collapse.
How the Study Was Conducted
The researchers analyzed financial data from 16 textile and apparel companies listed on the Indonesia Stock Exchange. The dataset covers a five-year period, from 2020 to 2024, and was drawn from the companies’ publicly available financial reports.
The researchers used a quantitative approach to examine how three key factors influence financial distress:
Industry Under Pressure
Indonesia’s textile and garment industry plays a key role in the national economy, contributing to gross domestic product and employing a large workforce. However, the sector has faced mounting challenges in recent years. Rising imports of textile products, shifting consumer preferences toward fast fashion and secondhand clothing, and declining purchasing power have weakened domestic producers. Export demand has also slowed, creating further strain. One of the most visible impacts was the 2024 bankruptcy of PT Sri Rejeki Isman Tbk, a major textile company that failed to meet its debt obligations after years of declining sales and heavy financial losses. This case underscores how financial instability can escalate into corporate collapse.
How the Study Was Conducted
The researchers analyzed financial data from 16 textile and apparel companies listed on the Indonesia Stock Exchange. The dataset covers a five-year period, from 2020 to 2024, and was drawn from the companies’ publicly available financial reports.
The researchers used a quantitative approach to examine how three key factors influence financial distress:
- Leverage (measured by debt-to-equity ratio).
- Asset structure (proportion of fixed assets).
- Sales growth (year-on-year revenue increase).
Financial distress was assessed using the Altman Z-Score, a widely used indicator for predicting bankruptcy risk. Statistical regression analysis was then applied to identify relationships between variables.
Key Findings
The study presents three clear conclusions about financial risk in the textile sector:
- Leverage increases financial distress - Companies with higher debt levels face significantly greater financial risk. The burden of repayment becomes harder to manage, especially during periods of declining performance.
- Asset structure reduces financial distress - Firms with a higher proportion of fixed assets, such as machinery and property, are more financially stable. These assets can serve as collateral and support operational continuity.
- Sales growth has no significant impact - Increasing sales does not necessarily improve financial health. Revenue gains are often offset by high operational costs and debt obligations.
Implications for Business and Policy
The findings offer several important insights for industry stakeholders:
The findings offer several important insights for industry stakeholders:
- Corporate leaders should carefully manage debt levels and avoid over-reliance on external financing.
- Asset optimization should be a strategic priority to enhance financial resilience.
- Investors can use leverage and asset structure as key indicators when assessing company risk.
- Policymakers may consider measures to protect domestic textile firms from external pressures such as import surges.
Author Profiles
Icha Amelia is a researcher in accounting and corporate finance at Surabaya State University, with a focus on financial distress and corporate performance analysis.
Eni Wuryani is a lecturer at Surabaya State University specializing in financial accounting, risk management, and financial statement analysis.
Sources
Icha Amelia, Eni Wuryani (2026), “The Effect of Leverage, Asset Structure and Sales Growth on Financial Distress in Textile and Garment Companies Listed on the Indonesia Stock Exchange in 2020–2024”. Formosa Journal of Applied Sciences (FJAS), Vol. 5 No. 3, 2026.
DOI: https://doi.org/10.55927/fjas.v5i3.31
URL: https://journalfjas.my.id/index.php/fjas
DOI: https://doi.org/10.55927/fjas.v5i3.31
URL: https://journalfjas.my.id/index.php/fjas
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