The Size and Determinants of Indirect Financial Distress Costs

Abstract

the aim of this paper is to provide a quantitative estimate of the indirect financial distress costs. This paper focuses on the Malaysian trading and services sector and concentrates only on measuring the financial distress costs in terms of changes in operating performance and changes in capital values. This study will contribute to the existing literature by providing an alternative proxy for indirect financial distress costs and perhaps of the first paper to provide the quantitative estimate of the costs for Malaysia’s financially distressed firms. Findings from our study suggest that indirect costs exist, and are found to be between 3.1% to 21.39%. It also suggests those three variables; Tobin’s q, size and expected earnings growth are statistically significant at 0.01, 0.1 and 0.05 significance level.