The Effect of Financial Performance and Financial Distress Indicators to the Stock Price of Bank Rakyat Indonesia

1 Harsono Yoewono , Diin Fitri Ande 2* Copyright © 2018 Authors. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. International Journal of Business Studies Vol. 2 No. 1 ( February 2018) 2 The published inancial reports are the only tools available for the public to analyse the soundness of a bank and predict its probable inancial distress and bankruptcy. This research intends to analyse 3 aspects of a bank, that is its inancial soundness/performance, distress, and the actual and relative price of a bank’s share. Three common and primary inancial performance indicators of a bank are liquidity, solvability, and rentability/pro itability. These three parameters are a part of CAMELS rating and supervisory system. Three other indicators, that is C (for capital), M (for management), and S (for sensitivity), are con ined to the ‘subjective’ de initions and interpretations of the authorities. As a non-participant observer, the researchers stand independent and apart from various aspect of reassessing, recounting to the published unaudited inancial reports. Some inancial ratios re lecting the inancial distress of a bank are used as an indication and initial predictor of probable inancial distress of a bank. The randomly changing stock price (stochastic) is a resultant of changing various inancial indicators cited in the inancial reports. On the other hand, the stock price can somehow re lect and provide signs of a bank to fail. A bank is deemed to fail when the words spread out that such bank cannot ful ill its obligation in the clearing process, the inter-bank money market, loan defaults, or elses. LITERATURE REVIEW Bank Performance The CAMEL supervisory system as mentioned above was set on the Decree of BI Director No.30/11/ KEP/1997. Alas , i t cannot be implemented on any branch level. Therefore, some revisions were taken place later on. On the other hand, EAGLES (Earning ability, Asset Quality, Growth, Liquidity, Equity, Strategic management) was perceived as an alternative of CAMEL system (Irmayanto et al, 2007:92-94). Soundness, healthiness is a mince word for performance. It can be de ined further to pro itability, rentability, liquidity, solvability. Some negative performance can be worded as inancial distress. The indicators for pro itability may include ROA (return on asset), ROE (return on equity), NPM (net pro it margin), OCR (operating cost ratio), or elses. In terms of ROI (return on investment), failure to manage the revenues and pro its accordingly can put the company as the or elses. As the unfavorable market depressed the stock prices, some banks are doomed to fail as they cannot satisfy the minimum capital requirements. As is the case, such banks get some kind of warnings from the government of icials, either from Bank Indonesia and/or Otoritas Jasa Keuangan (OJK). The penalties can take a form of excluded from the clearing process, or worst, gets liquidated. Some early warning systems have been set to detect, signal, and notify the authorities once a bank begins to crumble and experience some level of inancial distress, particularly the capital adequacy ratio (CAR) requirement. However, some troubled banks can and worth to be saved and salvaged. Especially when the epitome of ‘too big to fail’ takes precedence. Some political and moral hazard usually steps in, building the fragile arguments. Some cherry picking usually creates criticisms, chain reactions, and snowballing. The patchy salvations create a mockery such as another day, another bail out. The usual stale arguments spoken out loud have been the highly potential of systemic nature of risks in banking, payment, inancial, and economic, in partial or the whole. The public can only know and be aware of the soundness of a bank through their published inancial reports. The authorities have never been disclosing and publishing the health status of any bank, but when the markets begins to jitter and unravel. Some massive press release is usually issued and disseminated, then. Huge press conferences are held and covered by all media companies.


BUSINESS STUDIES ipmi
Stock price is very vulnerable to any disseminated information. Any decrease in stock price can erode bank's capital exponentially. As the stock price luctuates, so does the bank's capital. Likewise the bank's productive assets, either in value and/or quality in terms of loan disbursements, deals in the inter-bank money market, and in the clearing process with Bank Indonesia (BI).
The dynamics of stock price are determined by many factors. It can come from inside of the company, supporting companies, indirectly related, or totally unrelated. The externalities can be related or not in terms of business deals, inancially, or economically. It is often the case that the causing factors mostly come from the changing situation and condition in politics, social, environmentalists, The published inancial reports are the only tools available for the public to analyse the soundness of a bank and predict its probable inancial distress and bankruptcy. This research intends to analyse 3 aspects of a bank, that is its inancial soundness/performance, distress, and the actual and relative price of a bank's share.
Three common and primary inancial performance indicators of a bank are liquidity, solvability, and rentability/pro itability. These three parameters are a part of CAMELS rating and supervisory system. Three other indicators, that is C (for capital), M (for management), and S (for sensitivity), are con ined to the 'subjective' de initions and interpretations of the authorities.
As a non-participant observer, the researchers stand independent and apart from various aspect of reassessing, recounting to the published unaudited inancial reports. Some inancial ratios re lecting the inancial distress of a bank are used as an indication and initial predictor of probable inancial distress of a bank.
The randomly changing stock price (stochastic) is a resultant of changing various inancial indicators cited in the inancial reports. On the other hand, the stock price can somehow re lect and provide signs of a bank to fail. A bank is deemed to fail when the words spread out that such bank cannot ful ill its obligation in the clearing process, the inter-bank money market, loan defaults, or elses.

LITERATURE REVIEW Bank Performance
The CAMEL supervisory system as mentioned above was set on the Decree of BI Director N o . 3 0 / 1 1 / K E P / 1 9 9 7 . A l a s , i t c a n n o t b e implemented on any branch level. Therefore, some revisions were taken place later on. On the other hand, EAGLES (Earning ability, Asset Quality, Growth, Liquidity, Equity, Strategic management) was perceived as an alternative of CAMEL system (Irmayanto et al, 2007:92-94).
Soundness, healthiness is a mince word for performance. It can be de ined further to pro itability, rentability, liquidity, solvability. Some negative performance can be worded as inancial distress. The indicators for pro itability may include ROA (return on asset), ROE (return on equity), NPM (net pro it margin), OCR (operating cost ratio), or elses. In terms of ROI (return on investment), failure to manage the revenues and pro its accordingly can put the company as the or elses.
As the unfavorable market depressed the stock prices, some banks are doomed to fail as they cannot satisfy the minimum capital requirements. As is the case, such banks get some kind of warnings from the government of icials, either from Bank Indonesia and/or Otoritas Jasa Keuangan (OJK). The penalties can take a form of excluded from the clearing process, or worst, gets liquidated.
Some early warning systems have been set to detect, signal, and notify the authorities once a bank begins to crumble and experience some level of inancial distress, particularly the capital adequacy ratio (CAR) requirement. However, some troubled banks can and worth to be saved and salvaged. Especially when the epitome of 'too big to fail' takes precedence.
Some political and moral hazard usually steps in, building the fragile arguments. Some cherry picking usually creates criticisms, chain reactions, and snowballing. The patchy salvations create a mockery such as another day, another bail out. The usual stale arguments spoken out loud have been the highly potential of systemic nature of risks in banking, payment, inancial, and economic, in partial or the whole.
The public can only know and be aware of the soundness of a bank through their published inancial reports. The authorities have never been disclosing and publishing the health status of any bank, but when the markets begins to jitter and unravel. Some massive press release is usually issued and disseminated, then. Huge press conferences are held and covered by all media companies.
Financial distress or signs of the upcoming bankruptcy can be predicted, whilst its acuracy highly depends on how good the predictors estimated from the model formation set. Altman's Z-score has been highly praised as the pioneer formalising the multiple variable analysis to predict corporates to fail.
The original inancial ratios formulated by Altman to calculate the Z-score have been kept re ined and developed. Chen and Shimerda (1981:51-60) found that inancial ratios can predict corporate bankruptcy with an acuracy of more than 90%. The prominent 7 inancial ratios suggested by Dugan dan Zavgren (1989:64-65) are cash position, shortterm liquidity, inancial leverage, ROI (return on investment), capital turnover, inventory turnover, and receivables turnover.
sitting duck for hostile takeover target. Likewise, to deal and close the liquidity issues.
De ined by the ability for the bank to settle its shortterm debts by its liquid tools, liquidity indicators may include CR (cash ratio), RR (reserved requirements), LDR (loan to deposit ratio), LAR (loan to asset ratio), CMR (call money ratio), or elses. De ined by the ability for the bank to settle its long-term debts with its whole assets, solvability indicators may include CAR (capital adequacy ratio), DER (debt to equity ratio), LDAR (long-term debts to asset ratio), or elses. The second form of analysis is based on the movement of stock price, either individual, industrial, or the whole markets. It assumes that the market is the best predictor of fundamental variables such as revenues and risks, sooner than what has been perceived and anticipated by fundamental analysts (Reilly and Brown, 1997:772).
The herd instinct characterise and put the market as the place that highly full of sentiments and irrational. The rational and fundamental variables are factored and weighted in by the market players continually and automatically. Investors tend to capitalise the market, whenever and whatever possible, pricing in and cashing in (Levy, 1966:83).

Previous Studies on Bankruptcy and Bank Industry in Indonesia
From several studies on bankruptcy and bank industry in Indonesia, there are 8 references that worth to mention and recapitulated into the following

Stock Price
The marketable nature of securities has made the price of company's shares is vulnerable, highly dynamic, and to fully comply with the laws of demand and supply. The company's share gets acquired as long as there is some pro it prospect offered against the risk of possession. If the risk premium of the stock is relatively lower than any other stocks, the company's shares are deemed to less value and least attracted, vice versa (Brealey and Myers, 1991:307-308).
Stock price is like a two-edged sword. It re lects and highly depends on economic prospects. The analysis on stock price can be distinguished on 2 aspects, either fundamental or technical. The irst one tries to extrapolate many business aspects of a company against its industry, the whole economy, into the future value of the company's stock. If its FV is higher than its PV, then it is worth investing.
The intrinsic value of a share depends on the company's book value, total dividends, dividend payout ratio, EPS, and PER (Gompers et al, 2003). The stock price that becomes an asset (asset pricing) is considered to be ef icient as along as the price re lects the whole market information (Shleifer, 2000) is available to the stock traders, that aware or not (EMH theory) (Somoye et al, 2009:177-189).
PER, PBV (price/book value), PCF (price/cash low), and PDR (price/dividends) indicators have been used since the beginning of irst stock exchange, that is Amsterdam Stock Exchange in 16c. Scienti ic valuation began to take place when calculating DCF (Discounted Cash Flow) and DDM (Dividend Discount Model). DCF is perceived as the estimated price that fair (Coleman, 2006).
The next evolution of asset pricing theories are MPT (Modern Portfolio Theory) and CAPM (Capital Asset Pricing Model). Alas, these approaches can be implemented only on stock portfolio, but not on individual companies. Stock valuation theory then moved to put the stock price as the numerator and pro it (yield) as the denominator.
The prominent indicators of this theory are the ratios of book/market equity, book/price, earnings/ price, dividend/price. This stage has become the foundation of FF3F (Fama-French Three-Factor), which is perceived to be inef icient, irrational, not-scienti ic, and very disadvantageous. The risk factors are related to market, size (market capitalisation), and value (book to market equity ratio).  calculated the inancial reports of 213 banks in Indonesia for the period of 1994-1996. They ranked the score of 32 variables representing earnings, pro itability, productivity and ef iciency, asset quality, CAR, growth and aggressiveness, credibility, size, income and source of diversi ied funds, liquidity, and dependency on captive market.
After some suf icient calculations, they ranked and found that 12 variables that can discriminate signi icantly that 3 bank groups will fail within 2 years; 2 variables can discriminate signi icantly the failing banks within 1 year. The irst bank group (L) comprised of 25 banks that forcefully closed, merged, liquidated, or takenover by BPPN (IBRA). The second group (P) group comprised of 33 banks that supervised by BPPN. The third group (N) comprised of 155 banks operating normally. Sori and Jalil (2009)   The failing 17 listed companies were paired with the non-failing companies in the same industries, years of fail, similar asset size and age. From 64 variables examined to cause the event status, only 2 variables were found to be signi icant in discriminating the company's status, either fail or not. They were Cash low to Sales and Days Sales in Receivable.
Al-Rawi et al (2008) examined Altman's method that tries to predict corporate bankruptcy with Z-Score indicator in a manufacturing company in Jordan for the period of 2002-2004. They upheld the principles of 5 main variables de ined by Altman (1968) and Taf ler (1982). According to Altman and Taf ler, EBIT to total sales ratio as a an indicator for pro itability is the ultimate discriminant between a solvent (sound and health) and insolvent (bankrupt) company.
Nevertheless, some crucial points of the indings of Al-Rawi et al eventually had been perceived by other researchers. The method is only applicable in manufacturing industry, particularly in measuring the inancial distress in the old days. The method is not applicable in the inancial industries and present days that has offered more indicators and detailed igures, inancially and not.

Gap Analysis and Analytical Framework
Based on the distribution of usage and derived variables, length of observation periods, and observed data from 8 references related with this research, some conclusions that can be withdrawn are as follows the use of annual data; a brief period of observation (3 years on 5 studies; 5 years on 1 study; and 7 years in 1 study, and 11 years on 1 study); and very limited variables observed (less than 10 in 6 studies; and more than 10 in 2 studies).
What has not been done is the monthly data of inancial reports published and more variables. The relative price of share may include PER, EPS, and PBV. Four other forms of relative price of the share are PCF, DCF, DPS, and DDM. Dividends and cash low have not been reported on the monthly basis, but quarterly and annually. Analytical framework for this study describe in igure 2.

Research Variables
Research variables used in this report are productive assets, liquidity, rentability or pro itability, solvability, and inancial distress indicators. The variable of productive assets comprises of lending investment and non-loans disbursement. The liquidity variable comprises of indicators of cash ratio (CR), minimum requirement of liquidity (LWM), reserved requirement (RR, GWM), LDR (loan to deposit ratio), LAR (loan to asset ratio), call money ratio (CMR).
The pro itability variable comprises of ROA (return on assets), ROE (return on equity), ROI (return on investment), OCR (operating cost ratio), NPM (net pro it margin), and NIM (net interest margin). The solvency variable comprises of current liabilities, DER (debt to equity ratio), LDER (long-term debt to equity ratios), LDAR (long-term debt to asset ratios). The inancial distress variable comprises of short-term liquidity, current ratio (CR), DAR (debt to asset ratio), inancial leverage, capital turnover, working capital to sales ratio.   The expansiveness of BRI can be seen through the monthly growth of its main inancial indicators such as productive assets (1.83%), equity (1.78%), loan disbursements (1.67%), assets (1.44%), and the third party funds (1.44%). Although both assets and third party funds share the same monthly growth igures in average, each grew variedly by months.
The stock performance of BRI in IDX for the period of 2006-Jan. 2017 as shown in table 2.

Empirical Results
Any theory, hypothesis, or whatever that tries to determine a relationship between a variable with other variables is relative in nature. The relationship relativity can be seen on the interpretation to a glass of water, either half full or half empty. Not often, some relationships are forcedfully interpreted according to the presumptions, contentions, expectations of each on every vested interest parties.
Likewise, the applications of theory, principles, fundamentals on various interconnected relationships. The polarisation of any relationship can be seen easily on the perspectives of risk and reward, short-term which is quick yielding or longterm which is a long play, a long game. In the perspective of corporate inance, 2 common perspectives are capital structure and inancial structure. Included are the size and measures of standard inancial ratios such as liquidity, solvency, rentability, or elses.

Regression Analysis on h1 as the Dependent Variable
From the estimation of 52 independent variables assumed to affect the stock price, as much as 10 variables were excluded automatically by the IBM SPSS v24 in the estimation calculation process. The 10 variables excluded are a, a1, a3, a6, p2, p4, q4, std, s1, y2. The de inition of variables as described in the International Journal of Business Studies Vol. 2 No. 1 ( February 2018) From the 42 independent variables observed, only 2 variables that have a value of VIF<10, that is q13 and y1. In other words, these 2 variables have a multicollinearity with h1 variable, the close price adjusted after stock split. Table 5 shows the estimation results with h1 as the dependent variable.
The variation of 42 independent variable can affect the variation of h1 as the dependent variable, with the determination coef icient (R2) of 99.6%. The sig value of Fstat which is less than 0.05 is set as the basis of rejection of Ho, which is interpreted that the whole 42 independent variables is proved to signi icantly affect the h1 as the dependent variable.
shows the estimation result of regression equitation with h2 as the dependent variables.

Regression Analysis on h2 as the Dependent Variable
From the estimation of 52 independent variables assumed to effect the stock price, as much as 10 variables were excluded automatically by the IBM SPSS v24 in the estimation calculation process. The 10 variables excluded are a, a1, a3, a6, p2, p4, q4, std, s1, y2 . The de inition of each variables a shown Table 3.
The variation of 42 independent variable can affect the variation of h2 as the dependent variable, with the determination coef icient (R2) of 99.7%. The sig value of Fstat which is less than 0.05 is set as the basis of rejection of Ho, which is interpreted that the whole 42 independent variables is proved to signi icantly affect the h2 as the dependent variable.
Nevertheless, only 4 of the 42 independent variables that highly signi icant to affect the stock price variable, that is y3, q5, s3, and s5. It can be seen on the sig value of t-stat which is less than 0.05. As the sig value of t-stat is raised to 0.10, the 5 other independent variables appear to be signi icant in affecting the stock price are r7, p3, q9, q11, q1.

Conclusion and Recommendations
This study is to ind the effects of 4 main inancial indicators of a bank to its stock price, that is the measures of rentability, liquidity, solvability, and inancial distress. As much as 52 variables were found to be worth and eligible, to be estimated in particular with their effects to the stock price. In the process of estimation calculation, as much as 10 variables were excluded by the system.
From the remaining 42 independent variables, only 4 variables were found to be signi icant affecting the stock price variable. The 4 independent variables are market capitalisation (y3), the ratio of placement in BI to third party fund (q5), debt to equity ratio (DER, s3), and debt to asset ratio (DAR, s5).
Although the data had been collected and variables calculation had been conducted as thorough and accurate as possible, some lacks, omissions, and errors did occur, either in absolute manner and/or relatively. The absolute lacks mainly come from the non-existent data directly from the source, either BI and/or OJK, in parts, or through some periods of reporting times and dates.
The changes in the accounting systems that forcefully upheld by the authorities should not leave and annihilate the reports on the quality of productive assets for the whole periods. The inconsistency performed by the authorities appears blatantly in the lack of methods, guidance, or leads of how to make necessary adjustments from the past data to the present time showing.
Many old and past items have been omitted without clarity of changes, and/or reclassi ication of accounts. On the other hand, many new and present items are shown and revealed without clarity how they are generated and sourced in the past. As a consequence, many data has suffered discontinuation, misleading, and lost its integrity.
This research can be actualised and updated when the initial prognosis presented, aka the gap analysis, after the previous studies summarised and tabulated. The model estimation should include the relative price of the stock such as PER, EPS, DPS, PBV, PCF, DCF, and DDM.