Indicators of financial distress - An empirical study of Indian Textile sector


  • Jyoti Jaydeep Nair N.L.Dalmia Institute of Management Studies and Research
  • J K Sachdeva



Company Finance, Corporate Finance, Corporate Governance, Corporate Investment, Financial Statistics, Firm, Firm Level.




Businesses across the globe faces challenges to ensure stability, growth and sustainability. Companies have to deal with changes in economic, social, cultural, political and technological environment. Companies failing to do may face financial distress causing default in payment of contractual obligations and erosion of shareholders wealth. In a business scenario where the stakeholders are many viz. shareholders, lenders, employees, government and society at large, protection of the interests of the stakeholders assume prime importance. Company’s management are expected to identify signals that indicate distress and take remedial measures. This paper attempts to identify distress signals in textile sector in India. Textile sector is one of the largest sector in India. However one third of companies in this sector have reported losses for the previous year. This study aims to examine the factors that can differentiate a distressed company from a non- distressed company so that the factors signifying distress can be studied. Listed companies in textile sector incurring continuous losses for three years were selected for the study. Financial ratios were used as variables. Logistic regression was applied to identify the most important factors indicating distress. It was observed that ratios measuring profitability and efficiency were significant in predicting distress.


Key words:  Financial distress, distress signals, textile sector, continuous losses, financial ratios

Author Biographies

Jyoti Jaydeep Nair, N.L.Dalmia Institute of Management Studies and Research

Assistant Professor - Finance

J K Sachdeva

Former Director - Aruna Manharlal Institute of Management Studies and Research, Mumbai


Bhunia A., and Sarkar, Bagchi. (2011), “A study of financial distress based on MDA.”, Journal of Management Research, vol 3, no 2, pp 1-11.

Becerra V. M., Roberto K. H. G., and Abou-Seada, M. (2005), “Neural and wavelet network models for financial distress classification”, Data Mining and Knowledge Discovery, vol 11,no 1, pp 35-55.

Coyne Joseph S., Singh Sher.G., and Smith Gary J.(2008), “The Early Indicators of Financial Failure: A Study of Bankrupt and Solvent Health Systems”, Journal of Healthcare Management, vol 53, no 5, pp 333-346.

Ehab, Zaki (2011), “Assessing probabilities of financial distress of banks in UAE.”, Journal of Managerial Finance vol 7 no 3, pp 304-320

Ganesalingam S., and Kumar Kuldeep. (2001), “Detection of financial distress via multivariate statistical analysis” Managerial Finance, vol 27 no 4, pp 45-55.

Kane G. D., Richardson F. M., and Velury U. (2006), “The relevance of stock and flow-based reporting information in assessing the likelihood of emergence from corporate financial distress”, Review of Quantitative Finance and Accounting, vol 26 no 1 , pp 5-22.

Lakshan A.M.I,. and Wijekoon,W.M.H.N. (2013), “The use of financial ratios in predicting corporate failure in Sri Lanka” ,GSTF International Journal of Business Review, vol 2 no 4, pp 37-43.

Li-Jen Ko., Blocher Edward., and P Paul. Lin. (2001), “Prediction of Corporate financial distress: Application of the Composite Rule Induction System”, The International Journal of Digital Accounting Research, vol 1 no 1, pp 69-85.

Mahdi Salehi., and Bizhan Abedini. (2009), “Financial Distress Prediction in Emerging Market: Empirical Evidences from Iran”, Interdisciplinary Journal of Contemporary Research in Business, vol 1 no1, pp 6-26.

Mondal A., and Roy, D. (2013), “Financial indicators of corporate sickness: A study of Indian steel industry”, South Asian Journal of Management, vol 20 no 2, pp 85-101.

Murt, A. V .N., and Misra D. P. (2004), “Cash Flow Ratios as Indicators of Corporate Failure”, Finance India, vol 18 no 3, pp 1315-1325

Ohlson James. (1980), “Financial ratios and probabilistic prediction of bankruptcy”, Journal of Accounting Research, vol 18 no 1, pp 109-131.

Platt H. D., and Platt M. B. (2002), “ Predicting corporate financial distress: Reflections on choice-based sample bias”, Journal of Economics and Finance, vol 26 no 2, pp 184-199.

Sharpe Ian. G. and Andrei Stadnik. (2007), “Financial distress in Australian General Insurers”, Journal of Risk and Insurance, vol 7 no 2, pp 377-399.

Zongjun, Wang and Hongxia. Li. (2007), “Financial distress prediction of Chinese listed companies: a rough set methodology”, Chinese Management Studies, vol 1 no 2, pp 93-110.




How to Cite

Nair, J. J. and Sachdeva, J. K. (2016) “Indicators of financial distress - An empirical study of Indian Textile sector”, Journal of Global Economy, 12(2), pp. 101–110. doi: 10.1956/jge.v12i2.418.




Most read articles by the same author(s)

1 2 > >>