IDEAS home Printed from https://ideas.repec.org/a/rfh/bbejor/v11y2022i2p382-391.html
   My bibliography  Save this article

The Impact Of Financial Distress On Financial Performance Of Manufacturing Firms Listed At Pakistan Stock Exchange

Author

Listed:
  • SYEDA TABINDA RUBAB

    (M.Phil Scholar, School of Accountancy and Finance, University of Lahore, Pakistan)

  • NADIA HANIF

    (Assistant Professor, UE Business School, Division of Management and Administrative Science, University of Education, Bank Road Campus Lahore, Pakistan)

  • SYEDA AMBREEN FATIMA BUKHARI

    (MS Scholar & FCMA, Department of Management Sciences, COMSATS University Islamabad, Virtual Campus & Faculty member at ICMA International)

  • UMER MUNIR

    (Faculty member & ACMA, School of Accountancy and Finance, University of Lahore & ICMA International)

  • MUBASHER MUHAMMAD KAMRAN

    (Lecturer, School of Sociology, Minhaj University Lahore)

Abstract

The matter of firm financial performance and financial distress has prevailed in ample rational discussion in the last two decades. Financial performance is the company’s ability to manage and control its resources. The financial robustness of the firm is determined by its financial performance over a specific period of time. The main purpose of this study is to determine the impact of financial distress on the financial performance of manufacturing firms listed on the Pakistan Stock Exchange. This research is conduct to assess the financial distress condition in the manufacturing sector of Pakistan. The random effect regression model and the KMV (distance to default) model are use in this study to investigate the impact of financial distress on firm financial performance from 2016 to 2020 by using an unbalanced panel data set. The data used in this study is secondary data involving 130 manufacturing firms listed at PSX. Statistically, the hypothesis claims that financial distress has a negative and significant impact on firm financial performance, and other control variables such as firm size, net profit margin, and sales growth have a positive and significant impact on firm financial performance, or market to book value has a positive but insignificant impact on financial performance. This study concludes that financial distress has a negative impact on manufacturing sector firm financial performance by using the KMV (distance to default) model in the case of Pakistan. The consequences of this research is beneficial for the management of manufacturing sector, and also adds up value in existing body of literature. For the shareholders and creditors of the manufacturing organization, this study add value by providing the information regarding financial health of the organizations. Policy makers would be better able to frame effective policies regarding manufacturing sector financial performance.

Suggested Citation

  • Syeda Tabinda Rubab & Nadia Hanif & Syeda Ambreen Fatima Bukhari & Umer Munir & Mubasher Muhammad Kamran, 2022. "The Impact Of Financial Distress On Financial Performance Of Manufacturing Firms Listed At Pakistan Stock Exchange," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 382-391.
    • Handle: RePEc:rfh:bbejor:v:11:y:2022:i:2:p:382-391
    DOI: https://doi.org/10.61506/
    as

    Download full text from publisher

    File URL: https://bbejournal.com/BBE/article/view/397/853
    Download Restriction: no
    File URL: https://bbejournal.com/BBE/article/view/397
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.61506/?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Sulehri, Fiaz Ahmad & Ali, Amjad, 2020. "Impact of Political Uncertainty on Pakistan Stock Exchange (1990-1999): An Event Study Approach," MPRA Paper 104623, University Library of Munich, Germany.
    2. Marc Audi & Amjad Ali & Mohamad Kassem, 2020. "Greenhouse Gases: A Review of Losses and Benefits," International Journal of Energy Economics and Policy, Econjournals, vol. 10(1), pages 403-418.
    3. ŞENTÜRK, İsmail & Ali, Amjad, 2019. "Socioeconomic Determinants of Gender Specific Life Expectancy in Turkey: A Time Series Analysis," MPRA Paper 97815, University Library of Munich, Germany.
    4. Julio Pindado & Luis Rodrigues, 2005. "Determinants of Financial Distress Costs," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 19(4), pages 343-359, December.
    5. Beaver, Wh, 1966. "Financial Ratios As Predictors Of Failure - Reply," Journal of Accounting Research, Wiley Blackwell, vol. 4, pages 123-127.
    6. Asif Sajid & Amjad Ali, 2018. "Inclusive Growth and Macroeconomic Situations in South Asia: An Empirical Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 7(3), pages 97-109, September.
    7. Malcolm Smith & Dah‐Kwei Liou, 2007. "Industrial sector and financial distress," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 22(4), pages 376-391, April.
    8. Beaver, Wh, 1966. "Financial Ratios As Predictors Of Failure," Journal of Accounting Research, Wiley Blackwell, vol. 4, pages 71-111.
    9. Sumaira Ashraf & Elisabete G. S. Félix & Zélia Serrasqueiro, 2019. "Do Traditional Financial Distress Prediction Models Predict the Early Warning Signs of Financial Distress?," JRFM, MDPI, vol. 12(2), pages 1-17, April.
    10. Opler, Tim C & Titman, Sheridan, 1994. "Financial Distress and Corporate Performance," Journal of Finance, American Finance Association, vol. 49(3), pages 1015-1040, July.
    11. Arshad, Sumera & Ali, Amjad, 2016. "Trade-off between Inflation, Interest and Unemployment Rate of Pakistan: Revisited," MPRA Paper 78101, University Library of Munich, Germany.
    12. Ayesha Haider & Amjad Ali, 2015. "Socio-Economic Determinants of Crimes: A Cross-Sectional Study of Punjab Districts," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(11), pages 550-560, November.
    13. Waqas Shair & Sundas Naeem & Farhat Rasul, 2021. "Nexus Of Covid-19 News With Stock Market Returns And Volatility In Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(2), pages 92-99, June.
    14. Ashraf, Iram & Ali, Amjad, 2018. "Socio-Economic Well-Being and Women Status in Pakistan: An Empirical Analysis," MPRA Paper 88972, University Library of Munich, Germany.
    15. Sumera Arshad & Amajd Ali, 2016. "Trade-off between Inflation, Interest and Unemployment Rate of Pakistan: Revisited," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 5(4), pages 193-209, December.
    16. Woo-Jin Chang & Rachel M. Hayes & Stephen A. Hillegeist, 2016. "Financial Distress Risk and New CEO Compensation," Management Science, INFORMS, vol. 62(2), pages 479-501, February.
    17. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    18. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 109-131.
    19. Zmijewski, Me, 1984. "Methodological Issues Related To The Estimation Of Financial Distress Prediction Models," Journal of Accounting Research, Wiley Blackwell, vol. 22, pages 59-82.
    20. Yannick Roussel & Amjad Ali & Marc Audi, 2021. "Measuring The Money Demand In Pakistan: A Time Series Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(1), pages 27-41, March.
    21. Basdevant, Olivier & Hall, Stephen G., 2002. "The 1998 Russian crisis: could the exchange rate volatility have predicted it?," Journal of Policy Modeling, Elsevier, vol. 24(2), pages 151-168, May.
    22. Waqas, Hamid & Md-Rus, Rohani, 2018. "Predicting financial distress: Applicability of O-score and logit model for Pakistani firms," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 14(2), February.
    23. Alim, Wajid & Ali, Amjad & Minhas, Amna Shafiq, 2022. "The Impact of Leverage on the Firm Performance: A Case of Fertilizers Sector of Pakistan," MPRA Paper 114200, University Library of Munich, Germany.
    24. Iram Ashraf & Amjad Ali, 2018. "Socio-Economic Well-Being and Women Status in Pakistan: An Empirical Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 7(2), pages 46-58, June.
    25. Nisar, Sabahat & Asif, Rabia & Ali, Amjad, 2021. "Testing the Presence of the January Effect in Developed Economies," MPRA Paper 112548, University Library of Munich, Germany.
    26. Kassem, Mohamad & Ali, Amjad & Audi, Marc, 2019. "Unemployment Rate, Population Density and Crime Rate in Punjab (Pakistan): An Empirical Analysis," MPRA Paper 95964, University Library of Munich, Germany.
    27. Mohamad Kassem & Amjad Ali & Marc Audi, 2019. "Unemployment Rate, Population Density and Crime Rate in Punjab (Pakistan): An Empirical Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 8(2), pages 92-104, June.
    28. Câmara, António & Popova, Ivilina & Simkins, Betty, 2012. "A comparative study of the probability of default for global financial firms," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 717-732.
    29. Abdul RASHID & Qaiser ABBAS, 2011. "Predicting Bankruptcy in Pakistan," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(9(562)), pages 103-128, September.
    30. Dinh, Dung V. & Powell, Robert J. & Vo, Duc H., 2021. "Forecasting corporate financial distress in the Southeast Asian countries: A market-based approach," Journal of Asian Economics, Elsevier, vol. 74(C).
    31. Chih‐Chun Chen & Chun‐Da Chen & Donald Lien, 2020. "Financial distress prediction model: The effects of corporate governance indicators," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 39(8), pages 1238-1252, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:rfh:jprjor:v:8:y:2022:i:2:p:34-53 is not listed on IDEAS
    2. repec:rfh:jprjor:v:8:y:2022:i:2:p:23-33 is not listed on IDEAS
    3. Marc Audi & Fiaz Ahmad Sulehri & Amjad Ali & Razan Al-Masri, 2022. "An Event Based Analysis of Stock Return and Political Uncertainty in Pakistan: Revisited," International Journal of Economics and Financial Issues, Econjournals, vol. 12(5), pages 39-56, September.
    4. Alim, Wajid & Ali, Amjad & Minhas, Amna Shafiq, 2022. "The Impact of Leverage on the Firm Performance: A Case of Fertilizers Sector of Pakistan," MPRA Paper 114200, University Library of Munich, Germany.
    5. Ahmad Latif & Rimsha Javed, 2021. "Does Economic Growth, Population Growth And Energy Use Impact Carbondioxide Emissions In Pakistan? An Ardl Approach," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(2), pages 85-91, June.
    6. repec:rfh:jprjor:v:8:y:2022:i:1:p:31-44 is not listed on IDEAS
    7. Fiaz Ahmad Sulehri & Usman Ahmed & Wajid Alim, 2021. "Black Economy, Financial Inclusion, Financial Liberalization Nexus: A Panel Analysis Of Developing Countries," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(3), pages 65-77.
    8. Anam Sidra, 2021. "Role Of Supply Chain Practices In Reducing Trust Deficit On E- Business In Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(3), pages 247-252.
    9. repec:rfh:jprjor:v:8:y:2022:i:2:p:1-15 is not listed on IDEAS
    10. repec:rfh:jprjor:v:7:y:2021:i:4:p:41-49 is not listed on IDEAS
    11. Shazia Sana & Shahnawaz Malik & Muhammad Ramzan Sheikh, 2022. "Investigating The Effectiveness Of Channels Of Monetary Transmission Mechanism In Pakistan: An Application Of Var Model, Impulse Response Function And Variance Decomposition," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 160-184, June.
    12. Shahzad Hassan & Norazah Mohd Suki & Maria Akhtar & Khan Zaman Khan & Naveed Hassan, 2022. "What Is The Role Of Humble Leadership In Shaping Customer Citizenship Behavior And Employee Innovative Work Behavior? Evidence From Service Sector," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 235-243, June.
    13. Mehmood, Aqsa & Siddique, Hafiz Muhammad Abubakar & Ali, Amjad, 2022. "Impact of Health on Worker Productivity: Evidence from South Asia," MPRA Paper 113557, University Library of Munich, Germany.
    14. Ghulam Qambar & Shahid Mehmood & Nosheen Kanwal, 2021. "Promotion Oriented Research Culture: Understanding Scholars’ Deficiencies In Research Proficiency," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(3), pages 135-143.
    15. Zia-Ur-Rehman & Muhammad Razzaq Athar & M. Mohsin Shahid & Malik Muhammad Faisal & Mareum Shehzadi, 2022. "Exploring The Serial Mediation Of Mobile App Engagement And Self Brand Connection In The Relationship Between Brand Experience And Loyalty Towards Brand," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 20-30, June.
    16. Aqsa Mehmood & Hafiz Muhammad Abubakar Siddique & Amjad Ali, 2022. "Impact Of Health On Worker Productivity: Evidence From South Asia," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 1-8, June.
    17. Sulehri, Fiaz Ahmad & Ahmed, Usman & Alim, Wajid, 2021. "Black Economy, Financial Inclusion, Financial Liberalization Nexus: A Panel Analysis of Developing Countries," MPRA Paper 111129, University Library of Munich, Germany.
    18. Zerish Tasleem & Muhammad Hatim & Mahnoor Malik & Muhammad Nadeem & Muhammad Tariq Ramzan, 2022. "The Impact Of Health Facilities On Rural Poverty In Southern Punjab, Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 104-109, June.
    19. Arzoo Mushtaq & Shahnawaz Malik & Muhammad Hanif Akhtar, 2022. "Nonlinear Taylor Rule And Inflation-Targeting In Pakistan: A Time Series Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 185-197, June.
    20. Shahzad Hassan & Norazah Mohd Suki, 2022. "Plea For Customer Citizenship Behaviour: Mediating Role Of Customer Engagement And Customer Perceived Stress," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 9-19, June.
    21. Tariq Hussain & Ahmad Raza Ul Mustafa & Makhdum M.I. & Kaleem Ullah, 2022. "Defense Expenditures, Fiscal Deficit And Debt Servicing Nexus: A Case Study Of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 74-83, June.
    22. repec:rfh:jprjor:v:7:y:2021:i:4:p:11-17 is not listed on IDEAS
    23. Bismillah & Shahnawaz Malik & Muhammad Ramzan Sheikh, 2022. "Trade Liberalization And Fiscal Stance In Selected Developing Countries: A Granger Causality Approach In Var Framework," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 134-159, June.
    24. Afeefa Ahmad & Dilshad Ahmad, 2022. "Effects Of Women Empowerment On Access To Healthcare In Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 84-92, June.
    25. Sadia Safdar & Azra Khan & Ihtsham Ul Haq Padda & Madiha Abid, 2022. "Linkages Among Institutions, Investment And Growth: The Case Of Developing Countries," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 350-361.
    26. repec:rfh:jprjor:v:7:y:2021:i:4:p:31-40 is not listed on IDEAS
    27. Shakil Ahmad & Muhammad Waqas Khan, 2021. "Investigating The Effect Of Foreign Direct Investment (Fdi) And Foreign Remittances On Economic Growth In Pakistan (1990-2018): A Time Series Analysis Using Ardl Model Approach," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(1), pages 1-7, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rfh:bbejor:v:11:y:2022:i:2:p:382-391. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Muhammad Irfan Chani (email available below). General contact details of provider: https://edirc.repec.org/data/rffhlpk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.