From Financial Distress to Corporate Turnaround: An Episode-Based Measurement Approach in an Emerging Market Context

Hendra Agustinus Marbun; Erlina Erlina; Abdillah Arif Nasution; Chandra Situmeang

doi:10.61132/iceat.v3i1.213

Authors

Hendra Agustinus Marbun Universitas Sumatera Utara
Erlina Erlina Universitas Sumatera Utara
Abdillah Arif Nasution Universitas Sumatera Utara
Chandra Situmeang Universitas Negeri Medan

DOI:

https://doi.org/10.61132/iceat.v3i1.213

Keywords:

Corporate Turnaround, Financial Distress, Episode-Based Measurement, Emerging Markets, Research Methodology, Indonesia

Abstract

This paper introduces an episode-based measurement approach for studying corporate turnaround in emerging markets, addressing a fundamental methodological limitation in existing literature that predominantly treats the firm as the unit of analysis. Using data from the Indonesia Stock Exchange (IDX) covering 2000–2024, we identify 96 financial distress episodes from 87 non-financial firms, where distress is defined economically as periods when return on investment (ROI) falls below the prevailing risk-free rate. The episode-based framework reconceptualizes the unit of analysis from individual firms to discrete distress-recovery sequences, enabling temporal alignment of distress onset, strategy implementation, and recovery assessment. Descriptive findings reveal that 43.75% of episodes achieved successful turnaround, with management turnover present in 51.04% of episodes and macroeconomic shocks coinciding with 27.08% of episodes. An early empirical validation using binary logistic regression with cluster-robust standard errors demonstrates excellent model classification ability (AUC = 0.817, 75% accuracy). This paper contributes primarily to research methodology in turnaround studies by proposing a replicable, theoretically grounded approach that captures the dynamic, episodic nature of financial distress and recovery particularly relevant in emerging market environments characterized by recurrent macroeconomic volatility.

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