scholarly journals Cost of Financial Distress and Firm Performance

2019 ◽  
Vol 10 (2) ◽  
Author(s):  
Estu Widarwati ◽  
Dewi Sartika
Keyword(s):  
Firm Performance ◽  
Financial Distress

The effects of corporate governance on financial performance and financial distress: evidence from Egypt

2015 ◽  
Vol 15 (5) ◽  
pp. 641-662 ◽  
Author(s):  
Tamer Mohamed Shahwan
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Financial Performance ◽  
Financial Distress ◽  
Emerging Market ◽  
Negative Relationship ◽  
Positive Association ◽  
Time Frame ◽  
Content Type

Purpose – This paper aims to empirically examine the quality of corporate governance (CG) practices in Egyptian-listed companies and their impact on firm performance and financial distress in the context of an emerging market such as that of Egypt. Design/methodology/approach – To assess the level of CG practices at a given firm, the current study constructs a corporate governance index (CGI) which consists of four dimensions: disclosure and transparency, composition of the board of directors, shareholders’ rights and investor relations and ownership and control structure. Based on a sample of 86 non-financial firms listed on the Egyptian Exchange, the effects of CG on performance and financial distress are assessed. Tobin’s Q is used to assess corporate performance. At the same time, the Altman Z-score is used as a financial distress indicator, as it measures financial distress inversely. The bigger the Z-score, the smaller the risk of financial distress. Findings – The overall score of the CGI, on average, suggests that the quality of CG practices within Egyptian-listed firms is relatively low. The results do not support the positive association between CG practices and financial performance. In addition, there is an insignificant negative relationship between CG practices and the likelihood of financial distress. The current study also provides evidence that firm-specific characteristics could be useful as a first-pass screen in determining firm performance and the likelihood of financial distress. Research limitations/implications – The sample size and time frame of our analysis are relatively small; some caution would be needed before generalizing the results to the entire population. Practical implications – The findings may be of interest to those academic researchers, practitioners and regulators who are interested in discovering the quality of CG practices in a developing market such as that of Egypt and its impact on financial performance and financial distress. Originality/value – This paper extends the existing literature, in the Egyptian context in particular, by examining firm performance and the risk of financial distress in relation to the level of CG mechanisms adopted.

scholarly journals Board Capital Effect on Firm Performance: Evidence from Indonesia

2021 ◽  
Vol 21 (1) ◽  
pp. 491-506
Author(s):  
Maria Kontesa ◽  
Andreas Lako ◽  
Wendy
Keyword(s):  
Human Capital ◽  
Firm Performance ◽  
Financial Distress ◽  
Board Members ◽  
Firm Level ◽  
Capital Theory ◽  
Strategic Resources ◽  
Board Capital ◽  
And Performance ◽  
High Level

Human capital effects have been ignored as important resources to induce the organization’s performance in firm-level research. The proponents of human capital theory and resource-based view theory argue that the human resources attached to each board member, such as networking, education, and experience, might induce the performance. Yet, agency theory argues those strategic resources might bring higher transaction costs and entrenchment costs. Therefore, this study aims to examine the board's capital effect on firm performance for a sample of 252 listed firms in Indonesia over 2011–2017. Using dynamic GMM panel regression, we confirm the hypothesis about board capital and performance. The results imply that board members’ networking and experience are two important factors for firm performance. However, boar members’ education does not give any impact. It confirms prior theories whereby the capability and competency of directors are an important source for the firm to achieve its objective. Networking and experience might help the firm to avoid financial distress. It furthers implies that shareholders should choose board members with a high level of networking and experience, not education.

scholarly journals PERAN CORPORATE GOVERNANCE DALAM MENURUNKAN KEBANGKRUTAN PADA PERUSAHAAN DI INDONESIA

2017 ◽  
Vol 21 (3) ◽  
pp. 391
Author(s):  
Tasya Hilaliya ◽  
Farah Margaretha
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Financial Distress ◽  
Manufacturing Industry ◽  
Negative Impact ◽  
Stock Exchange ◽  
Z Score ◽  
Panel Data Regression ◽  
Data Regression ◽  
Governance Practices

This research examines the influence of Corporate Governance on Firm Performance measured by Tobin's Q and Financial Distress measured by Z-score. The samples used were 72 companies engaged in the manufacturing industry are listed on the Indonesia Stock Exchange (BEI) for five years from 2011 to 2015. The analytical methods used in this research is panel data regression, discriminant analysis, and logistic regression. The results showed that (I) there is no significant impact between corporate governance practices on firm performance. (2) there is negative impact between corporate governance practices on financial distress. Then, the companies need to increase corporate governance in order to avoid possibility of financial distress and for the investor before making an investment should consider the factors that affect the firm performance and financial distress

The financial leverage–financial performance relationship in the emerging market of Turkey: the role of financial distress risk and currency crisis

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ismail Kalash
Keyword(s):  
Firm Performance ◽  
Financial Performance ◽  
Financial Distress ◽  
Emerging Market ◽  
Currency Crisis ◽  
Ordinary Least Squares ◽  
Financial Leverage ◽  
Content Type ◽  
Distress Risk

PurposeThe purpose of this article is to examine how financial distress risk and currency crisis affect the relationship between financial leverage and financial performance.Design/methodology/approachThis study uses data of 200 firms listed on Istanbul Stock Exchange during the period from 2009 to 2019, resulting in 1950 firm-year observations. Pooled ordinary least squares, random effects, firm fixed effects and two-step system GMM models are used to investigate the hypotheses of this study.FindingsThe results reveal that financial leverage has negative and significant effect on financial performance, and that this effect is stronger for firms with higher financial distress risk. Furthermore, the findings provide moderate evidence that currency crisis exacerbates the negative association between leverage and performance.Practical implicationsThe results of this study have important implications for firms in emerging markets. Managers can enhance firm performance by reducing the level of financial leverage, especially in firms with higher financial distress risk. These firms incur higher debt costs, and then they can benefit more from the decreases in debt ratio in their capital structure. Moreover, the decreases in debt level have more importance in currency crisis times, when the access to external finance becomes more expensive and more difficult.Originality/valueTo the author's knowledge, this research is the first to examine the effect of currency crisis on the financial leverage–financial performance relationship and is one of few that investigate the role of financial distress risk in determining the linkage between leverage and firm performance.

External and internal determinants of performances of Shariah and non-Shariah compliant firms

2019 ◽  
Vol 12 (2) ◽  
pp. 236-253 ◽  
Author(s):  
Catherine S.F. Ho ◽  
Nor Erna Nabila Mohd-Raff
Keyword(s):  
Firm Performance ◽  
Financial Distress ◽  
Firm Heterogeneity ◽  
Relevant Information ◽  
Firm Characteristics ◽  
Term Survival ◽  
Content Type ◽  
Panel Data Regression ◽  
New Findings ◽  
And Performance

Purpose This study aims to provide comprehensive models that investigate the combination of both external fundamentals and internal characteristics on firm performance and if there is any difference between Shariah and non-Shariah compliant firms. The objective of this paper therefore is to analyze the significant relation between external fundamentals, internal characteristics and firm performance. Design/methodology/approach Panel data regression analyses are applied to determine significant results. It helps to control for unobserved factors of firm heterogeneity, which may result in spurious regression. Findings Most internal firm characteristics are found to be significant, but the same cannot be said for external fundamentals. Firm size is found to be very significant in driving both sets of firm performances. Financial distress in term of higher level of leverage is found to be a negative driver of non-Shariah-compliant firms’ performance in terms of return on asset but not for Shariah firms consistent with Islamic finance understanding. Shariah-compliant firms with higher liquidity tend to perform much better than less liquid firms, but the same is not found for non-Shariah-compliant ones. Research limitations/implications This study is limited to the industrial production sector and compares both Shariah and non-Shariah compliant firms. Practical implications This study adds new findings to clarify the roles of external macroeconomic fundamentals and internal characteristics determinants on firm performance. Findings from this study combine relevant information on different sets of determinants on firm performance and produce empirical evidence beneficial to both sets of Shariah and non-Shariah compliant firms in the industry. Originality/value This paper fulfills the need for firms to understand the external and internal environment for continuous survival and performance. It is therefore important for firms to recognize the possible factors which may influence their performance and mechanisms to sustain their performance for long-term survival.

scholarly journals Exploring the Relationship between Financial Distress, Financial Flexibility, and Firm Performance: Empirical Evidence from Pakistan Stock Exchange

2018 ◽  
pp. 1-16
Author(s):  
Yasin Mahmood ◽  
Muhammad Faisal Rizwan ◽  
Abdul Rashid
Keyword(s):  
Firm Performance ◽  
Panel Data ◽  
Financial Distress ◽  
Stock Exchange ◽  
Z Score ◽  
Firm Level ◽  
Financial Flexibility ◽  
Corporate Managers ◽  
And Performance ◽  
The Impact

Purpose– This main purpose of this paper is to empirically investigate the impact of corporate financial flexibility (FF) on financial distress and performance of firms listed on the Pakistan Stock Exchange (PSX). It enables to know how financial flexibility affects the firm financial strength, financial distress, and corporate performance. Design/methodology/approach –This study focuses on a firm level data of 192 non-financial firms covering the period 1992 - 2014. The fixed effect model logistic regression is applied by using unbalanced panel data to examine the impact of financial flexibility on financial distress, and performance of sample firms. Findings – The results reveal that financially flexible firms are less likely to face financial distress. As firms have more financial flexibility, the probability of financial distress decreases as well. It is also found that financially flexible firms are more likely to perform well than counterpart firms. By using the Altman z score as a measure of financial distress it is revealed that as the Altman z score increases, the chances of financial distress reduce as well. These findings also suggest the existence of pecking order in Pakistani firms; because firms rely on internal sources first, second go to external sources of financing. Practical implications – the findings of this study enable the corporate managers to avoid financial distress by obtaining and maintaining financial flexibility by keeping the leverage level lower than industry level. By attaining and maintaining financial flexibility, corporate managers can also raise the performance of the firm as well. It can also enable to make appropriate capital structure decision to finance managers of corporate firms. The creditors may provide the loan to sound firms who have no or least chances of financial distress. The lenders may also get benefit from it by requiring the interest rate as per risk of financial distress of the firm. Investors may avoid investing in firms having very little or no financial flexibility. JEL Classification– G33, L25 Keywords: Altman z score, financial flexibility, firm performance, return on asset, panel data, financial distress, modified z score.

scholarly journals Financial Distress and Firm Performance: Evidence from COVID-19.

2021 ◽  
Vol 5 (1) ◽  
pp. 108-122
Author(s):  
Christine Kah Shu Teoh
Keyword(s):  
Firm Performance ◽  
Financial Distress ◽  
Negative Relationship ◽  
Debt Ratio ◽  
Return On Assets ◽  
Listed Firms ◽  
Significant Negative Relationship ◽  
Equity Ratio ◽  
The Impact ◽  
Return Value

This study is dedicated to discovering the impact of COVID-19 on Malaysia’s plantation industry firms.  This paper uses quarterly data from annual report of 39 listed firms from Malaysia from 2018 to 2020. The variables to measure financial distress are debt ratio and debt-to-equity ratio while the measurement for firm performance is return on assets. The findings shows that there is a significant negative relationship between debt-to-equity ratio on firm performance. This indicates that the increase in debt-to-equity ratio results in a significant decrease in return on total assets. On the other hand, positive correlation exists between debt ratio and firm performance. This means that an increase in debt ratio results in an increase in the return value of total assets.      

CEO Turnover, Financial Distress, and Contractual Innovations

2013 ◽  
Vol 89 (3) ◽  
pp. 959-990 ◽  
Author(s):  
John Harry Evans ◽  
Shuqing Luo ◽  
Nandu J. Nagarajan
Keyword(s):  
Labor Market ◽  
Firm Performance ◽  
Financial Distress ◽  
Bargaining Power ◽  
Data Availability ◽  
Specific Knowledge ◽  
Ceo Incentives ◽  
Distressed Firms ◽  
Incentive Problems ◽  
Jel Classifications

ABSTRACT The design of CEO incentives is particularly important for firms in financial distress. We compare the resolution of CEO incentive problems in distressed firms between the 1980s versus the 1990s, focusing on how changes in contractual provisions, as well as in the executive labor market, resulted in a shift to a new equilibrium. Our analyses provide evidence that the increased bargaining power of creditors, together with changes in the use of contractual provisions in the 1990s, enabled creditors to more effectively retain highly skilled CEOs with firm-specific knowledge and provide them with incentives to improve firm performance. Data Availability: Data used in this study are available from public sources identified in the article. JEL Classifications: G33; G34; M46.

scholarly journals Financial leverage and performance of SMEs in Vietnam: Evidence from the post-crisis period

2021 ◽  
Vol 10 (3) ◽  
pp. 229-239
Author(s):  
Tung Duy Bui ◽  
Huan Huu Nguyen ◽  
Vu Minh Ngo
Keyword(s):  
Firm Performance ◽  
Capital Structure ◽  
Financial Distress ◽  
Debt Financing ◽  
Policy Implications ◽  
Panel Data Models ◽  
Debt Ratio ◽  
Firm Profitability ◽  
And Performance

This study examines the link between capital structure and firm performance (measured by ROA and ROE), focusing on a large sample of SMEs in Vietnam during the postcrisis period (2008-2016). Empirical results from various panel data models confirm the nonlinear relationship between debt financing and firm profitability. This relationship takes the form of an inverted-U shape. Firm profitability only increases to a certain level of leverage. When the debt ratio becomes too high, firm performance starts to decrease. These results highlight the role of financial distress costs in debt financing for SMEs. Furthermore, the paper also confirms the heterogeneity between state-owned firms and private ones. Policy implications are also discussed.

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