Financial Distress and its Determinants in Selected Beverage and Metal Manufacturing Firms in Ethiopia
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Date
2011-06
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Addis Ababa University
Abstract
In this paper attempts are made to identify determinants of financial distress in
selected beverage and metal manufacturing firms in Ethiopia. The study estimates
determinants of financial distress using panel data starting from 1999 to 2005. Using
panel data regression, the researcher analyzed internal and some of external factors
affecting firm’s financial distress.
The results show that profitability, firm age, liquidity and efficiency (Eff) have
positive and significant influences to Debt Service Coverage (DSC) as a proxy of
financial distress. On the other hand, leverage (Lev) has a negative and significant
relation with DSC. Other variables such as operational viability and good corporate
governance have no significant impact on the status of firm’s financial distress.
Furthermore, the analysis indicated that operationally viable companies in some
period of time should not be a guarantee that the companies going concern to fulfil its
liabilities. Liquidity of companies which can be a prominent point can be recognized
by evaluating cash flow performance.
On the other case, the response of financial managers to the sample questionnaires
indicates that firm’s liquidity, leverage, profitability, efficiency; firm size and low debt
service coverage are the main causes of financial distress at highest degree. The
variable operational viability causes firm’s financial distress at higher level. On the
other hand, the variable such as macroeconomic factors, industrial relations, good
corporate governance implementation problems and firm age causes financial
distress at lower level
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Keywords
Manufacturing firms in Ethiopia