Assessing Financial Distress to Foster Sustainable Growth: Insights from Indian Listed Companies

Title

Assessing Financial Distress to Foster Sustainable Growth: Insights from Indian Listed Companies

Creator

Korath, Maya; Nayak, Surekha

Description

A companys success and survival depend on its financial viability, which is primarily determined by its strong key financial ratios. When these ratios fall below the critical levels, the companys long-term survival is threatened indicating the onset of financial distress (FD). In this context the FD prediction models can act as an early warning system, enabling corporate managers to intervene mid-way and take corrective action. This study focuses on Indian-listed companies that filed under the Insolvency and Bankruptcy Code (IBC) 2016, between the years 2020 and 2023. Out of the 200 listed companies that applied for bankruptcy, 40 companies were selected for the study that showed either the status as Resolution plan or withdrawal or Rejected as per the National Company Law Tribunal (NCLT) order. To analyze the long-term survival prospects of these companies, the study employs Altmans Z-score modelsthe initial Z-score model for publicly traded companies and the EMZ score that is modeled for emerging markets like India. Both the models were calculated along with Z-score probabilities to gauge the likelihood of financial distress. Additionally, the Beneish M-Score was calculated to validate the financial data. The results from the Z-score models indicate that several companies showed declining financial stability during the study period with some on the verge of bankruptcy, while the M-score revealed potential financial manipulation in certain cases. The Author(s), under exclusive license to Springer Nature Switzerland AG 2025.

Source

Studies in Systems, Decision and Control;Volume;236;pp.157-168

Date

01-01-2025

Publisher

Springer Science and Business Media Deutschland GmbH

Subject

Bankruptcy; Financial distress; M-score model; Prediction model; Sustainable growth; Z-score model

Coverage

Korath M., Christ (Deemed to Be University), Bengaluru, India; Nayak S., School of Business and Management, Christ (Deemed to be University, Bengaluru, India

Rights

Restricted Access; Hardcopy may be available in the library

Relation

ISSN: 21984182;

Format

online

Language

English

Type

Book chapter

Identifier

https://doi.org/10.1007/978-3-031-86712-5_12

https://www.scopus.com/pages/publications/105010923105?origin=resultslist