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Indonesian Study Finds Cash Flow Critical in Preventing Corporate Financial Distress
Researchers from Universitas Jambi have found that strong operating cash flow significantly reduces the risk of financial distress among consumer cyclical companies listed on the Indonesia Stock Exchange. The 2026 study also revealed that rapid sales growth can unexpectedly increase financial distress risk, while firm size and solvability showed little measurable impact. The findings provide new insight into how Indonesian companies can better manage financial stability during periods of economic uncertainty.
The study was conducted by Sando Kalferi, Wiralestari, and Lutfi from Universitas Jambi. Their research focused on consumer cyclical companies between 2022 and 2024, a period marked by weakening purchasing power, slowing retail performance, and global economic instability. The study was published in the 2026 edition of Jurnal Multidisiplin Madani (MUDIMA).
Consumer Cyclical Sector Faces Economic Pressure
Indonesia’s consumer cyclical sector includes industries heavily dependent on public spending, such as automotive, tourism, hospitality, textiles, restaurants, and retail. These businesses tend to perform strongly during economic expansion but are highly vulnerable when consumer confidence weakens.
The researchers highlighted that Indonesia’s non-essential consumer goods sector experienced significant pressure during the observation period. Stock market data cited in the study showed the sector index declining by 11.09% year-to-date in 2025, even as the broader Indonesian Composite Index posted positive growth. Analysts linked the downturn to weakening purchasing power and declining consumer confidence.
Several major Indonesian companies also showed signs of financial strain. The researchers identified firms such as PT Sri Rejeki Isman Tbk (Sritex) as examples of companies facing financial pressure due to debt burdens and weakening market demand. Other firms in textiles and retail sectors experienced similar risks, including bankruptcy threats and operational instability.
Against this backdrop, the Universitas Jambi team investigated which financial indicators most strongly predict financial distress among publicly listed consumer cyclical companies.
How the Research Was Conducted
The study analyzed secondary financial data from 82 consumer cyclical companies listed on the Indonesia Stock Exchange during the 2022–2024 period. After removing statistical outliers, the researchers examined 218 financial observations using multiple linear regression analysis.
The research focused on four main variables:
- Cash flow
- Sales growth
- Firm size
- Solvability or debt-to-equity ratio
Financial distress was measured using the Zmijewski model, a widely used financial distress prediction method that estimates bankruptcy risk based on financial indicators.
The researchers also tested the statistical reliability of the model through normality, multicollinearity, heteroscedasticity, and autocorrelation tests to ensure the findings were consistent and valid.
Strong Cash Flow Reduced Financial Distress Risk
The study found that operating cash flow had a statistically significant negative effect on financial distress. Companies with healthier operating cash flow were less likely to experience financial instability.
Regression analysis showed that an increase in cash flow reduced financial distress scores by 0.258 points. The relationship was statistically significant, with a probability value of 0.008.
According to the researchers, strong operating cash flow gives companies greater flexibility to manage debt, fund daily operations, and withstand economic downturns.
The authors from Universitas Jambi explained that stable cash inflows send positive signals to investors and creditors because they reflect a company’s ability to meet financial obligations and maintain business continuity.
The study noted that weak operating cash flow can quickly create liquidity problems, especially for consumer cyclical companies that depend heavily on changing consumer demand.
Sales Growth Produced Unexpected Results
One of the study’s most surprising findings involved sales growth. Researchers discovered that higher sales growth was associated with a greater likelihood of financial distress.
The regression model showed that increasing sales growth raised financial distress scores by 0.182 points, with statistical significance at 0.010.
While rising sales are generally viewed as a positive business indicator, the researchers suggested that rapid expansion can also increase operational costs, financing needs, and liquidity pressure. Companies experiencing aggressive growth may struggle to manage cash efficiently if revenue growth is not accompanied by strong operational control.
The findings indicate that fast sales growth alone does not guarantee financial health. Companies must also ensure efficient cash management and sustainable expansion strategies.
Firm Size and Debt Levels Showed Limited Impact
The study found no significant relationship between firm size and financial distress. Larger companies did not necessarily demonstrate stronger protection against financial instability.
Similarly, solvability, measured through the debt-to-equity ratio, showed no statistically significant impact on financial distress within the sample.
Researchers suggested that the structure of asset financing and managerial effectiveness may play a more important role than company size or leverage ratios alone.
The statistical model showed that the four variables collectively influenced financial distress, although they explained only 7.7% of the overall variation. This indicates that other factors such as profitability, liquidity, governance quality, or macroeconomic conditions may also strongly influence financial health.
Implications for Investors and Businesses
The findings offer practical lessons for investors, lenders, and corporate managers operating in Indonesia’s volatile consumer-driven sectors.
For businesses, the study highlights the importance of maintaining healthy operating cash flow rather than focusing exclusively on revenue growth. Stable liquidity appears to be more important than company size in reducing financial distress risk.
For investors, the research suggests that operating cash flow may be a stronger warning indicator than traditional balance sheet measures. Companies reporting rapid sales growth without strong cash generation may face hidden financial vulnerabilities.
Lenders and financial institutions may also benefit from prioritizing cash flow analysis when assessing creditworthiness. The researchers emphasized that companies with weak operational cash flow face greater difficulty meeting short-term and long-term obligations during economic downturns.
The study additionally supports the broader use of financial distress prediction models such as the Zmijewski model in monitoring public companies and identifying early warning signs of bankruptcy risk.
Author Profile
Sando Kalferi, S.E. is a researcher in accounting and financial management at Universitas Jambi, Indonesia. His research focuses on financial distress analysis, corporate finance, financial performance evaluation, and risk assessment in Indonesian public companies.
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