Determinants of Indirect Financial Distress Costs

Bulot, Norhisam; Salamudin, Norhana; Abdoh, Wan Mohd Yaseer Mohd; Yusuf, Noor Hafizha Muhamad; Mutallib, Hasyeilla Abd

doi:10.1007/978-981-287-426-9_50

Cited by 2 publications

(3 citation statements)

References 22 publications

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“…Firm size is found to be inversely associated with financial distress costs, showing that the bigger the firm's assets, the lower will be the IFDC. This support the findings of Bulot et al (2014) and Opler (1993) that bigger firms have several advantages over smaller firms such as economies of scale and economies of scope which save them from indirect costs but these results do not agree with the findings of Wijantini (2007), who shows a significant positive association between the two. Besides, the result of the analysis shows that asset intangibility is positively associated with IFDC.…”

Section: Resultscontrasting

confidence: 73%

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Indirect financial distress costs in non-financial firms: evidence from an emerging market

Farooq

Qureshi

Bhutta

2021

PAR

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Purpose This study aims to analyse 508 financially distressed firm-year observations for the period 2010–2018 of Pakistan Stock Exchange (PSX) listed firms to examine the magnitude of indirect financial distress costs (IFDC) and to investigate which firm-specific variable is relatively important in explaining these indirect costs. This will not only enrich empirical literature but also helpful in cross-country comparison. Design/methodology/approach Optimal model selection along with panel data analysis technique is used to select the most optimal model to observe the findings. Financial distress is measure through Altman’s Z-score and firm-specific variables cover leverage, level of intangible assets, investment policy, tangible assets, firm’s size, level of liquid assets and Tobin’s Q of sample firms. Findings The findings of this study show that the average size of IFDC for the sample observations is 6.70%. In addition to this, finding further suggest that leverage, the level of intangible assets and changes in investment policy have positive while the size of the firm and Tobin’s Q have a significant negative impact on IFDC. Further, this paper argues that the level of tangible assets and liquid assets are statistically unimportant in observing the IFDC for PSX financially distressed firm-year observations. Practical implications The findings of this study provide more insight to corporate managers and investors about the association between firm-specific financial characteristics and IFDC concerning Pakistani firms. Furthermore, this study contributes to the existing literature by adding new evidence from developing countries such as Pakistan which are helpful for regulatory bodies and policymakers in the formulation of long-term strategies to manage the financial distress costs. Originality/value The study extends the body of existing literature on IFDC regarding Pakistan. The results suggest that policymakers may pay special attention to the quality of a firm’s capital structure strategies while predicting corporate financial distress costs.

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Section: Resultscontrasting

confidence: 73%

“…They find that marginal indirect costs are equal to 2%-39% of the firm's value. In the same way, Bulot et al (2014) analyse the trading and service sector of Malaysia and try to estimate IFDC. The results show that IFDC is significant and amounted to 3.1%-21.39% firm value.…”

Section: Past Studied On Indirect Financial Distress Costsmentioning

confidence: 99%

Indirect financial distress costs in non-financial firms: evidence from an emerging market

Farooq

Qureshi

Bhutta

2021

PAR

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“…Although the aforementioned papers are rather old, there are many studies that use the methodologies proposed there. For example, the indirect costs calculation approach of Altman was recently repeated by [Kwansa, Cho, 1995;Pham, Chow, 1989;Bhabra, Yao, 2011;Bulot, Salamudin, Abdoh, 2014] and others.…”

Section: Literature Reviewmentioning

confidence: 99%

Evaluation of financial distress costs of innovative companies

Makeeva

Khugaeva

2018

RMJ

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Over the last few decades investments in research and development (R&D) projects have risen significantly. Many experts have found a positive relationship between R&D expenses and a company's value. However, investments in innovations are characterized by a high level of uncertainty. Often innovations generate income only in long run. These factors increase the probability of firms' financial distress considerably. Thus, the aim of the present paper is to evaluate financial distress costs at companies that invest in research and development projects. The study covers 389 innovative firms over the period from 2006 to 2015. The analysis is based on a direct and indirect costs evaluation. The first are estimated through panel logistic regression. Indirect costs are calculated as unexpected losses or profits relative to industry indicators. The paper confirms the existence of relation between R&D expenses and financial instability. The results of the research show that the total financial distress costs of innovative companies amount to 7.95% of total assets or 11.78% of the value of a company on average.

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Determinants of Indirect Financial Distress Costs

Cited by 2 publications

References 22 publications

Indirect financial distress costs in non-financial firms: evidence from an emerging market

Indirect financial distress costs in non-financial firms: evidence from an emerging market

Evaluation of financial distress costs of innovative companies

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