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Predicting Financial Distress in Malaysia and Its Effect on Stock Returns

Hanafi, Ahmad Harith Ashrofie and Md-Rus, Rohani and Mohd, Kamarun Nisham Taufil (2021) Predicting Financial Distress in Malaysia and Its Effect on Stock Returns. International Journal of Banking and Finance (IJBF), 16 (2). pp. 81-110. ISSN 2590-423X

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Unstable economic conditions have an adverse impact on the financial performance of firms, leading to financial distress, which is an unfavourable situation for investors as it may affect their investment returns. Thus, this study attempted to predict financial distress and to examine the effect of financial distress on stock returns by using firms listed on Bursa Malaysia from 1990 to 2020. This study used the logit model to find the probability of bankruptcy and also as a proxy for financial distress risk in the asset pricing model. From this study, financial distress risk was found to be insignificant in pricing stock returns in all tested models. This finding demonstrates that financial distress risk does not affect stock returns since this risk may be eliminated through diversification.

Item Type: Article
Uncontrolled Keywords: Predicting financial distress, financial distress risk, stock returns
Subjects: H Social Sciences > HG Finance
Divisions: School of Economics, Finance & Banking
Depositing User: Mrs Nurin Jazlina Hamid
Date Deposited: 05 Mar 2023 08:40
Last Modified: 05 Mar 2023 08:40

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