FACTORS AFFECTING FINANCIAL DISTRESS: THE CASE OF MALAYSIAN PUBLIC LISTED FIRMS

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Chan Kok Thim, Yap Voon Choong, Chai Shin Nee

DOI:10.22495/cocv8i4c3art3

Abstract

A sample of 101 companies is selected randomly from Bursa Malaysia during the period 2005-2009 where two models are used to analyze the relationships between financial distress and firms’ characteristics and risk. The dependent variables are long-term debt to total equity ratio and short-term debt to total equity ratio. The independent variables are profitability, liquidity, firm size, solvency, growth and risk. Size is found to be significant and has a positive relationship with financial distress. Interest coverage ratio has a positive relationship with financial distress, while growth of operating profits has a negative relationship with financial distress. Corporate managers should use these indicators to detect early signs of financial distress and take innovative actions to prevent such occurrences.

Keywords: Financial Distress, Risk, Financial Ratios

How to cite this paper: Thim, C. K., Choong, Y. V., & Nee, C. S. (2011). Factors affecting financial distress: The case of Malaysian public listed firms. Corporate Ownership & Control, 8(4-3), 345-351. http://dx.doi.org/10.22495/cocv8i4c3art3