Nexus between efficiency and financial distress of listed firms in India: a comparative study using frontier techniques

Jagjeevan Kanoujiya () and Shailesh Rastogi ()
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Jagjeevan Kanoujiya: Symbiosis International (Deemed University)
Shailesh Rastogi: Symbiosis International (Deemed University)

OPSEARCH, 2024, vol. 61, issue 2, No 14, 835-866

Abstract: Abstract Financial distress (FD) signals the early warning of the undesirable state of a firm's business failure. Such early signs are essential for the firm to resolve future business failures promptly. This study investigates the influence of technical efficiency (TE) on the firm's FD. This study combines techniques to provide a comparative analysis for robust outcomes. TE is measured using Data Envelope Analysis (DEA) and Stochastic Frontier Analysis (SFA). FD is calculated by various Altman's Z-scores (AZS) and BOS distress scores developed by Berger et al. (J Financ Econ 42:259–287, 1996) and AC distress scores by Almeida and Campell (Rev Financ Stud 20:1429–1460, 2007). A sample of 78 non-financial listed firms in India for the observation period 2016–2020 is taken for the panel data analysis. The study's findings reveal that TE impacts the firm's FD. Moreover, DEA and SFA efficiencies have exhibited positive and negative effects on the firm's FD. The Covid-19 pandemic also has enhanced the FD. The current findings deliver essential implications for the stakeholders by demonstrating that TE is crucial for a firm’s FD condition. This study augments the existing knowledge body by assessing the efficiency and distress scores of non-financial firms in India. This study also contributes to the related literature on FD through its novel findings of TE's impact on FD.

Keywords: Financial distress; Efficiency; DEA; SFA; Bankruptcy (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s12597-023-00712-6

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