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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.
Thim et al. (Sat,) studied this question.