An Investigation of Costs of Financial Distress in Case of On-going Manufacturing Firms of Pakistan

The core objective of current study is to investigate the costs of financial distress of ongoing manufacturing sector of Pakistan. A panel of 146 manufacturing firms Pakistan are selected for this study for the period of 2001-2011. Two most applicable panel data techniques (fixed effects and random effects models) are utilized to investigate the costs of financial distress and Hausman’s specification test recommended that fixed effects model is most appropriated model in this study. The results of fixed effects model suggest that financial distress of on-going firms of Pakistan has significant direct impact on opportunity losses in case of Pakistan after control average collection period, total assets growth, fixed to total assets ratio, tangibility of assets and sector distressed. The upcoming studies must explore direct costs of financial distress and bankruptcy in case of manufacturing as well as service sector of Pakistan.