THE ROLE OF COST EFFICIENCY AS A MEDIATOR IN THE RELATIONSHIP BETWEEN FINANCIAL DISTRESS AND CORPORATE FINANCIAL HEALTH

Abstract

The aim of this present research study is to examine how cost efficiency as a mediator, influence the financial distress relative to corporate financial health of companies listed with the Pakistan Stock Exchange (PSX). This research causal effect study evaluates the relationship between financial distress and Corporate Financial Health whereby the financial distress is the independent variable and Corporate Financial Health the dependent variable. Leverage and size are used as measures of risk and, therefore, are control variables. The targeted population consists of all the companies except the financial sector which is listed in the PSX and the sample of the study consists of 161 companies. The data for these companies for the years 2016-2022 used were prepared from the balance sheets, profit and losses statements and equity statements available in the annual reports. The data collected were analyzed with the help of some tools, including MS Office and SPSS. Altman-Z was adopted to measure financial distress while Corporate Financial Health was measured using Tobin’s q. Hypotheses testing was used to test the impact of financial distress on Corporate Financial Health with cost efficiency as the mediating variable.

Keywords: Financial Distress, Corporate Financial Health, Convenient Sampling Technique, Balance Sheets, Profit And Loss Statements, Equity Statements, Altman’s Z-Score Model, Tobin’s q Method, Causal-Effect Research Design, Regression Equation, Correlation, PSX, Cost Efficiency