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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.

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.

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.

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.

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.

The purpose of the study is to systematically review the literature of indirect cost of financial distress to understand its scope, measurements, impact size and determinants to synthesis with future research agenda.

Five-step process of systematic literature review (SLR) as applied by Opoku et al. (2015) is used. SLR extracted 47 studies of indirect cost after applying specified search criteria. Data regarding measurement, impact size and determinants are presented and summarised in specified tables.

SLR showed that the study of indirect cost in developing countries is a literature gap. It is also found that opportunity loss, operating profit loss, market loss and risk premium are most studied indirect costs using legal definition or ex ante proxy of financial distress. However, future studies are recommended to use both non-linear leverage and ex ante proxy of financial distress. Future studies are also suggested to use the moderation technique while studying the determinants of indirect cost.

Literature selection is based on specific search criteria that can miss some of the other related literature.

The indirect cost of financial distress is more costly and difficult to measure due to its complex concealed effects. A detailed literature of indirect cost is needed to understand the construct that eventually will help to define the future research agenda. To the best of the authors’ knowledge, no SLR of indirect cost is provided yet. Therefore, the outcome of this research will be valuable for both academicians and practitioners.

This study seeks to analyse if the adjustment towards the target short-term debt ratio of small and medium-sized firms (SMEs) is related to financial distress risk.

Data obtained for a sample of Portuguese manufacturing SMEs from 2010 to 2017 were analysed using the system-generalised method of moments (GMM-sys). Using the modified Z-Altman score, the authors classify SMEs according to their exposure to financial distress risk.

Manufacturing SMEs exposed to a high risk of financial distress rebalance their short-term debt ratio quicker. However, regardless of the financial distress risk level, SMEs distant from the target short-term debt ratio adjust more slowly, suggesting that transaction costs are greater than financial distress costs.

Policymakers should promote the access to external sources of finance with low transaction costs for SMEs, exposed to low levels of financial distress risk, to rebalance their short-term debt ratios quicker. Distressed SMEs far from their target short-term debt ratios, but with capacity to rebalance, need government programmes to access finance with low transaction costs to rebalance their short-term debt ratios.

This paper contributes to deepening our understanding of how SMEs, facing financial risk, rebalance their short-term debt ratios. SMEs, facing high financial distress risk, adjust towards their target short-term debt ratios more rapidly. However, SMEs, distant from the target short-term debt ratio face higher transaction costs than financial distress costs. These firms adjust towards their target short-term debt ratios more slowly, which may aggravate the refinancing risk and, ultimately, announce bankruptcy.

This paper aims to propose a theoretical model designed to predict the likelihood of financial distress of an enterprise and to quantify the damages whenever the financial crisis became full-blown.

Coherently with the objectives of the paper, the analysis considers the last seven exercises (period: 1999/2006) of a sample of 25.000 small- and medium-sized enterprises (SMEs) (volume of sales: < 20 mlns; number of employees: < 250) organized in the form of Ltd. The empirical investigation has been affected through the use of BvD database: Aida and Mint Italy.

The analysis shows that the ex post costs of financial distress decrease in relation to the company’s increased ability to use intangible assets and in relation to the local roots of the banks (local banks rather than international banking groups).

The instruments used for this study need to be subjected to more statistical tests to establish a more robust validity and reliability. Replication of this study using larger samples and a broader geographic base (extended at European level) is suggested.

The timely monitoring of investigated variables allows you to mitigate the costs of exit from the market.

Following the global financial crisis, this paper sheds new light on the financial distress cost of Italian SMEs.

The purpose of this article is to examine how financial distress risk and currency crisis affect the relationship between financial leverage and financial performance.

This 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.

The 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.

The 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.

To 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.

This study aims to explore the role of corporate social responsibility (CSR) on the likelihood of financial distress for a sample of 139 Pakistan Stock Exchange (PSX) listed firms throughout 2008–2019.

The dynamic generalized method of moments (GMM) estimator is used to examine the impact of CSR on financial distress. The investment in CSR is measured through a multidimensional financial approach which comprises the sum of the contribution made by the company in the form of charitable donation, employees’ welfare and research and development, while the Altman Z-score is used as an indicator of financial distress. The higher the Z-score, the lower will be the probability of financial distress.

The authors find a significant positive impact of CSR on financial distress in GMM model. This finding is consistent with the shareholder view and over-investment hypothesis of CSR as management makes an investment in CSR to get personal benefits, which resultantly leads the firm toward financial distress state. Further, this positive relationship remains present for firms having strong involvement in foreign business through exports.

Like other studies, the present study is not free from limitations. First, financial firms are skipped from the sample, although literature witnesses a lot of studies highlight the financial firms’ commitment to achieving CSR goals. Second, financial distress occurs in different stages, and this study fails to establish a linkage between CSR engagement at different stages of financial distress. In the future, researchers can make valuable addition by covering these missing links in present studies.

Findings suggest several practical implications. For policymakers, they should encourage firms to adopt more socially responsible behavior as it not only prevents them from distress but also comes with better investment behavior, minimize bankruptcies and make economies more strong and stable. Second, results suggest corporate managers emphasize socially responsible behavior as its benefits are beyond the “societal benefits” as it lessens financial distress through lower cost of debt, lesser financial constraints and reduced cost of information asymmetry, and it minimizes the cost of capital. Lastly, investors make risk premium assessments related to future earnings by determining the likelihood of financial distress in the future.

The study extends the body of existing literature on CSR and the likelihood of financial distress in Pakistan, which is according to the best knowledge of the authors, not yet studied before. The results suggest that policymakers may pay special attention to the quality of CSR while predicting corporate financial distress.

Sees the objective of teaching financial management to be to help managers and potential managers to make sensible investment and financing decisions. Acknowledges that financial theory teaches that investment and financing decisions should be based on cash flow and risk. Provides information on payback period; return on capital employed, earnings per share effect, working capital, profit planning, standard costing, financial statement planning and ratio analysis. Seeks to combine the practical rules of thumb of the traditionalists with the ideas of the financial theorists to form a balanced approach to practical financial management for MBA students, financial managers and undergraduates.

To examine the impact of corporate governance on Cost of Capital (COC) and financial distress in the ASEAN countries.

We compiled a list of the 50 largest publicly listed firms by market capitalization in each of the following five East Asian countries, namely Malaysia, Singapore, Thailand, the Philippines, and Indonesia. Furthermore, we then divided the five countries into two distinctive categories – (i) Malaysia and Singapore (Common Law/strong legal protection countries) and (ii) Thailand, the Philippines, and Indonesia (Civil Law/weak legal protection countries). The annual data is collected for the time period ranging from 2006 to 2015, allowing a total observation of 1,317 firm years.

Overall, the paper supports the findings of many researchers that Board independence, promulgating good corporate governance, leads to better access to capital at lower cost, thus providing growth opportunities for ASEAN region. Taking lead from Simpson and Gleason (1999) and similar, we emphasize that during financial distress CEO duality will strengthen control systems and reduce internal discord in ASEAN firms.

The paper is one of the niche studies that has incorporated the difference between civil and common law rule in the study of corporate governance and its impact on financial measures of firms' in the ASEAN countries.

This study investigates the convergence-of-interest and entrenchment effects on the relationship between managerial ownership and financial distress using evidence from the Chinese stock market. It also analyzes whether the relationship is mediated by research and development (R&D) investment.

Using a dataset consisting of 19,059 firm-year observations of Chinese listed companies in the Shanghai and Shenzhen Stock Exchanges between 2010 and 2020, this study employs both piecewise and curvilinear models.

The results indicate that managerial ownership has a negative association with firm financial distress in both the low (below 12%) and high (above 18%) convergence-of-interest regions of managerial ownership, suggesting that managerial ownership in this region may contribute to improve firm financial status. Meanwhile, managerial ownership has a positive association with firm financial distress in the entrenchment region (12–18%), implying that managerial ownership in the entrenchment region may contribute to impair firm financial status. Furthermore, the results show that R&D investment mediates the association between managerial ownership and financial distress.

This study is the first to provide evidence of a nonlinear relationship between managerial ownership and financial distress, and identify the entrenchment region in the Chinese setting.

The purpose of this research is to examine the influence of ownership structure, independent directors, managerial agency costs and audit's opinion on the firm's financially distressed status using a sample of distressed companies and a matched‐pair sample of non‐distressed companies listed on Chinese stock markets.

The study utilizes publicly‐available data from annual reports of a sample of 404 non‐finance distressed firms listed on Chinese stock markets and a sample of matched 404 non‐distressed firms for a period covering the 1998‐2005 financial years with binary logistic analysis.

Ownership concentration, state ownership, ultimate owner, independent directors and auditors' opinion turn out to be negatively associated with the probability of financial distress, while administrative expense ratio is positively related with the likelihood of financial distress. Managerial ownership does not appear to be a significant determinant.

The paper offers evidence on the extent to which distress is associated with corporate governance from the emerging stock markets. It would be educational to Chinese small investors who excessively favour pursuing short‐term returns and be helpful for regulatory authorities in making policies on corporate governance reformation.