An Investigation of Factors Affecting Financial Distress: Analysis Among PN17 Companies in Bursa Malaysia

Abstract

Financial distress is a condition of problems in corporate financing, in which there is a means of inability to pay to a creditor and is at risk of bankruptcy in the future. Those publicly listed companies having financial problems and any related issues will fall under Practice Note 17 (PN17). To have a better understanding, this study has aimed to examine the factors affecting financial distress among the PN17 companies in Bursa Malaysia for ten years of analysis, using data from 2008 to 2017. A total of 154 observations have been taken from 17 companies by using the Pooled Ordinary Least Square (POLS) and Random Effect Model (Breusch and Pagan Lagrangian Multiplier Test). Profitability, size of firm, sales growth, liquidity, and leverage have been chosen as independent variables, while total debt acts as a dependent variable for this investigation. Findings suggest that liquidity, size of firm, and leverage have a significant impact on financial distress, while profitability and growth sales have it in the other direction. A further implication is that it is beneficial for those companies and investors to make wise decisions on short- and long-term investments towards their shareholdings.

Evaluating the efficacy of financial distress prediction models in Malaysian public listed companies

“…The study on the influence of liquidity, leverage, and profitability ratio on financial distress by Fatimah et al (2019) found liquidity did not affect financial distress, while leverage had a positive and significant effect on financial distress. Manaf et al (2020) investigated the factors that contribute to financial distress among the PN17 companies in Bursa Malaysia. The study found that liquidity, firm size, and leverage had a significant impact on financial distress, while profitability and sales growth had the opposite effect.…”

A Conceptual Perspective On Corporate Governance And Financial Distress In Malaysia

“…Companies facing financial distress encounter economic challenges such as insufficient capital or equity. In Malaysia, a financially distressed company is classified as a PN17 Company (Manaf et al, 2020). The PN17 refers to Practice Note 17, which is a regulatory framework employed by Bursa Malaysia, the Malaysian Stock Exchange (Manaf et al, 2020).…”

“…In Malaysia, a financially distressed company is classified as a PN17 Company (Manaf et al, 2020). The PN17 refers to Practice Note 17, which is a regulatory framework employed by Bursa Malaysia, the Malaysian Stock Exchange (Manaf et al, 2020). It classifies financially distressed companies failing to meet minimum capital, equity, or core business criteria.…”

“…It classifies financially distressed companies failing to meet minimum capital, equity, or core business criteria. Companies under PN17 must submit a comprehensive plan for regularization to address financial challenges (Manaf et al, 2020). Bursa Malaysia, as the country's primary stock exchange, enforces these guidelines to maintain market integrity.…”

An Investigation of Financial Indicators towards The Changes of Financial Distress: Building A Conceptual Framework

“…In Malaysia, companies that falls under the financial distress are called practice Note 17 (PN 17) companies. These companies are protected by section 276 of the company Act 1965 and monitored or checked by regulatory body towards predicting and addressing bankruptcy (Manaf et al, 2020). Based on that, the said PN17 companies have to deliver their reports to the board in order to secure approval for restructuring and maintaining their status in the list of companies (Manaf et al, 2020).…”