Corporate financial distress: The case of publicly listed firms in an emerging market economy

Abstract

Occurrences of financial distress (FD) are not readily obvious yet can span several periods. This paper examines episodes of FD using industry-relative (IR) firm-/ accounting-, market- and macro-level information. Mixed logit regressions reveal that firm- and market-based measures, as well as macro-level variables explain the likelihood of FD in 263 publicly listed non-banking firms in the Philippines during the period 1995 to 2018. Rates of identification of firms in financial distressed states of close to 69 percent are obtained at a cutoff probability of 0.30 in the model with time-varying intercept and slope. This study shows the importance of recognizing heterogeneous firm behavior. The ability to more accurately predict the probability of FD and to determine the financial health of firms can help financial institutions in allocating funds and policy makers in predicting crises episodes.