The effect of credit risk and capital adequacy on financial distress in rural banks

Firm’s Risk and Capital Structure: An Empirical Analysis of Seasonal and Non-Seasonal Businesses

“…The negative coefficient of CR shows that increasing (decreasing) one point of CR causes to decrease (increase) LV by 0.27 points for seasonal business while increasing (decreasing) one point of CR causes to decrease (increase) LV by 0.15 points for non-seasonal business. These findings are consistent with previous empirical literature (Iqbal & Kume, 2015;Srivastava, 2014;Danila et al, 2020;Gilchrist & Mojon, 2018;Imbierowicz & Rauch, 2014;Buchdadi et al, 2020;Tulcanaza et al, 2019;Vivel-Búa et al, 2018;Chodnicka-Jaworska & Jaworski, 2017;Woo et al, 2020) and also support the hypothesis-1. The selected firms hold a larger amount of capital as an incentive to avoid failure.…”

“…Imbierowicz and Rauch (2014) also found an indirect connection between credit risk and debt-equity ratio. Buchdadi et al (2020) studied the association among capital adequacy ratio, debt to equity ratio and credit risk of nine banks by using non-performing loan as an indicator of bank credit risk. The study's pooled OLS regression showed the significant relation between debt to equity ratio and credit risk.…”

The Effects of Capital Adequacy, Credit Risk, and Liquidity Risk on Banks’ Financial Distress in Indonesia

“…Credit risk has a positive and significant effect on banks' financial distress. This is in line with the research results [1], in which the greater the value of NPL, the greater the NPL ratio will be. So, there is a deviation from the income that is expected to be received by the bank.…”

“…Based on this statement, the first hypothesis in this research is: H1 = Capital Adequacy Ratio has a negative and significant effect on the measurement of banks' financial distress. [1] found that credit risk has a positive and significant effect on banks' financial distress. This is in contrast to the results of the research by [14] which proved that the Non-Performing Loan ratio has a negative and insignificant effect on banks' financial distress.…”

“…Research conducted by [2] proved the relevance of the liquidity ratio and the Capital Adequacy Ratio (CAR) to banks' financial distress. Meanwhile [1] proved that credit risk and CAR have a significant influence on banks' financial distress. This study complements previous research, using asset liability management as a bank's internal factor and the market as an external factor which is under category of a commercial bank with business activities level 1.…”