What Drives Financial Distress for Pn4 and Pn17 Listed Firms in Malaysia?

Abstract

Research on financial distress has attracted growing attention in the recent past. Enormous corporate failures in history have pointed to the need for deepened research on financial distress. This study attempts to predict the financial distress of listed firms in the Malaysian Stock Market by using firms’ financial ratios. Using Logit Regression Analysis, this study analysed a sample from Malaysian public listed firms from the year 2000 to 2018 to predict the probability of financial distress events. It showed that financial distress such as total assets turnover, earnings before interest and tax to sales, debt ratio, and shareholder’s fund to total debt were found to be significant in predicting financial distress. Based on the confusion matrix approach the developed model showed high accuracy in predicting financial distress since it could predict most of the cases within the sample correctly.

An Investigation of Financial Indicators towards The Changes of Financial Distress: Building A Conceptual Framework

“…In Malaysia, financial distress among public companies has become an alarming problem worthy of consideration due to the increasing rate of corporate bankruptcy. The country have witnessed a massive growth before the emergence of Asian financial crisis which crippled the country's economy in 1997 (Hanafi & Shahimi, 2020). This situation has changed the status of several public firms to financial distress after the downturn of the stock market to about 54% throughout the period (Hanafi & Shahimi, 2020).…”

“…The country have witnessed a massive growth before the emergence of Asian financial crisis which crippled the country's economy in 1997 (Hanafi & Shahimi, 2020). This situation has changed the status of several public firms to financial distress after the downturn of the stock market to about 54% throughout the period (Hanafi & Shahimi, 2020). Based on this situation, the practiced Note 17 (PN17) was introduced to classify those firms that falls under financial distress.…”

“…Based on this situation, the practiced Note 17 (PN17) was introduced to classify those firms that falls under financial distress. Based on this arrangement, the financially distressed public listed companies that fails to meet up with the minimum equity or capital (less than 25% of the paid-up total capital) are classified under the PN17 companies by Bursa Malaysia (Hanafi & Shahimi, 2020). In recent times, it has been revealed that about 936 public companies were listed among the PN17 companies in Bursa Malaysia (Muller, 2021).…”

Board Diversity in Financial Distress Companies in Malaysia

“…4/2001 (PN4), which was later changed to Practice Note No. 17/2005 (PN17) on 3 January 2005 (Ashrofie Hanafi & Ahmed Shahimi, 2020). PN17 was further amended on 5 May 2006 concerning financial conditions and level of operation to enhance Bursa Malaysia's handling of listed financial distress firms.…”