{'fraction_non_alphanumeric': 0.02058554437328454, 'fraction_numerical': 0.006404391582799634, 'mean_word_length': 5.357558139534884, 'pattern_counts': {'":': 0, '<': 0, '<?xml version=': 0, '>': 0, 'https://': 0, 'lorem ipsum': 0, 'www.': 0, 'xml': 0}, 'pii_count': 0, 'substrings_counts': 0, 'word_list_counts': {'cursed_substrings.json': 0, 'profanity_word_list.json': 0, 'sexual_word_list.json': 0, 'zh_pornsignals.json': 0}}
Indirect financial distress costs in non-financial firms: evidence from an emerging market


Purpose
This study aims to analyse 508 financially distressed firm-year observations for the period 2010–2018 of Pakistan Stock Exchange (PSX) listed firms to examine the magnitude of indirect financial distress costs (IFDC) and to investigate which firm-specific variable is relatively important in explaining these indirect costs. This will not only enrich empirical literature but also helpful in cross-country comparison.


Design/methodology/approach
Optimal model selection along with panel data analysis technique is used to select the most optimal model to observe the findings. Financial distress is measure through Altman’s Z-score and firm-specific variables cover leverage, level of intangible assets, investment policy, tangible assets, firm’s size, level of liquid assets and Tobin’s Q of sample firms.


Findings
The findings of this study show that the average size of IFDC for the sample observations is 6.70%. In addition to this, finding further suggest that leverage, the level of intangible assets and changes in investment policy have positive while the size of the firm and Tobin’s Q have a significant negative impact on IFDC. Further, this paper argues that the level of tangible assets and liquid assets are statistically unimportant in observing the IFDC for PSX financially distressed firm-year observations.


Practical implications
The findings of this study provide more insight to corporate managers and investors about the association between firm-specific financial characteristics and IFDC concerning Pakistani firms. Furthermore, this study contributes to the existing literature by adding new evidence from developing countries such as Pakistan which are helpful for regulatory bodies and policymakers in the formulation of long-term strategies to manage the financial distress costs.


Originality/value
The study extends the body of existing literature on IFDC regarding Pakistan. The results suggest that policymakers may pay special attention to the quality of a firm’s capital structure strategies while predicting corporate financial distress costs.
