UNTYING EMPIRICAL KNOTS: DETERIORATION OF PROFITABILITY, ECONOMIC FAILURE, AND FINANCIAL INSOLVENCY IN THE PHILIPPINES BEFORE COVID-19 OUTBREAK

Abstract

Corporate bankruptcy has enormous economic ramifications, particularly for investors and creditors of publicly listed companies (PLC). Prior to a corporate collapse, a company's financial status is frequently in jeopardy, and its performance either affirms progress or predicts failure. As a result, management is interested in a technique of determining a company's financial distress. Financial accounting analyses were performed to determine the solvency, liquidity, profitability, and gearing capacity of 136 firms, with 680 economic entries, before CoVid-19 Outbreak. To scrutinise financial distress, the Altman Z-scores and financial zone of discriminations were generated through GB bankruptcy, and PLC bankruptcy model. The link between declining profitability, economic failure, and financial insolvency as indicators of financial distress was examined through panel regression with random factors. Prior to the COVID-19 outbreak, there were no signs of declining profitability, economic collapse, or financial insolvency in the Philippines, according to the findings of the study. Individual components of financial distress and the overall z-score have no statistically meaningful association with financial performance and position markers. As a result, the solvency ratio has little predictive value in forecasting financial distress. The fact that a company has a higher solvency ratio does not also imply that it is less likely to go bankrupt. The findings go counter to classic accounting perspectives and pure managerial research that claim the solvency ratio is always a reliable predictor of financial distress. Finally, the paper examined the financial health of firms and untangled the knots of financial distress.