The Impact of Financial and Macroeconomic Variables on Financial Distress: Evidence from Pakistani Market

Abstract

The purpose of this paper is to check the effect of financial ratios and macroeconomic variable on financial distress. The population of this study is 559 non-financial companies that are listed on the Pakistan stock exchange. The final sample size is 285 non-financial companies for the period of 2013- 2017. Financial distress is dependent variable that shows categorical in nature. Therefore, this paper used logistic regression for the analysis. The result shows that profitability (EBITTA) has a negative significant relationship with financial distress, but RETA shows a positive significant relationship with financial distress. The result shows that liquidity ratio (WCTA) has a negative significant relationship with financial distress, but CACL shows a positive and insignificant relationship with financial distress. Additionally, Inflation has a positive significant relationship with financial distress. In the context of Pakistan, previous studies are limited to explore the link between financial and macroeconomic variables on financial distress. This paper also contributes to the literature and fills this gap. This study also indicates that to investigate the association between financial and macroeconomic variables on financial distress in the emerging market. Previous studies are limited to using this model and methodology especially in the context of Pakistan