EQUITY DURATION MODELS AS THE MEASUREMENT TOOLS ON POTENTIAL DEFAULT RISK OF COMPANIES IN THE ECONOMIC RECESSION AS THE IMPACT OF PANDEMIC COVID-19 IN INDONESIA

  • Josep Ginting President University
  • Jessi Chen President University
  • Gatot Imam Nugroho President University
Keywords: Default risk, Equity Duration, Altman Z - Score, Stock Performance

Abstract

Default risk is the uncertainty surrounding the ability of a firm to fulfill its debts and obligations. Potential default risk happens to the company when the country where that company operated is in the economic crisis. Indonesia have been attacked by economic crisis since February 2020 for the second time after 1998’s biggest economic crisis. To measure the potential default on companies, Almant Z-Score commonly used by analyst or risk management team in economic crisis. But for the crisis caused by the pandemic is different than the crisis caused by the monetary factor. To find another alternative of measurement where the accuracy as the first priority, in this research, the researcher proposed to test the Equity Duration Models. This models result “predicted” can be the right tools and give the more accurate result. The proposed tools used to measure the potential default of the samples, selected from the stock listed in LQ45 (the most active stocks and have a strong financial capability) and the stocks classified as the Suspension for Debt Payment Obligation in 2019 - 2020. We selected the stocks during 2019 to reflect the condition before pandemic Covid-19 and selected from 2020 to reflect the stocks in pandemic Covid-19 era. The result shows that both of methods showed us the same results. The first group (LQ 45) was mostly on Non-Distress or normal duration, and the second group (the stocks in Suspension for Debt Payment Obligation) was mostly on Distress or extended duration. Therefore, the investor might not perceive using only one method because its accuracy might vary
Published
2021-05-23