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.