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.