Survival of ASEAN Firms: Understanding Profitability, Liquidity, and Solvency Dynamics During Financial Distress

Abstract

In the dynamic landscape of business, a firm’s financial sustainability is paramount for long-term growth and operational stability. Key components of a firm’s financial structure include profitability, liquidity, and solvency. This study examines their impact on financial distress within the ASEAN region from 2012 to 2021, utilizing a sample of 44,800 observations. The findings reveal that profitability and liquidity exhibit a negative relationship with financial distress, suggesting that firms with higher profitability and liquidity are less susceptible to financial difficulties. Conversely, solvency demonstrates a positive association with financial distress, indicating that firms with greater solvency may face heightened risks of encountering financial distress. These findings hold significant implications for corporate decision-makers, financial analysts, and policymakers. Understanding the interplay among profitability, liquidity, and solvency enables firms to develop robust financial strategies to mitigate the likelihood of financial challenges. This research contributes valuable insights to the discourse on managing financial risks, offering guidance for prudent financial decision-making amidst evolving business landscapes. Keywords: profitability, liquidity, solvency, financial distress