The Effect of Financial Ratios on Financial Distress With Institutional Ownership is a Moderating Variable

Abstract

Post-pandemic economic pressures, including market uncertainty, supply chain disruptions, and rising operating costs, have heightened the risk of financial distress, particularly among consumer non-cyclical companies operating in essential sectors. This study aimed to examine the effects of financial ratios, including profitability, liquidity, solvency, and activity ratios, on financial distress, with institutional ownership as a moderating variable. The research population consisted of consumer non-cyclical companies listed on the Indonesia Stock Exchange (IDX) during the 2022–2024 period. The sample was selected using purposive sampling, resulting in 84 observations from a population of 132 companies. This study employed a quantitative approach using secondary data. Data were analyzed using EViews 12 through multiple regression analysis and Moderated Regression Analysis (MRA). The results showed that profitability, liquidity, and activity ratios had significant negative effects on financial distress, whereas solvency had no significant effect. Institutional ownership weakened the effects of liquidity and solvency on financial distress but did not moderate the relationships between profitability and financial distress or between activity ratios and financial distress. These findings highlight the importance of strengthening financial structures and enhancing corporate governance mechanisms to reduce the risk of financial distress among companies in essential sectors during the post-pandemic period.