Financial Distress and its Determinants on the Non- Financial Sector of KSE-100 Index Evidence from Chemical & Pharmaceutical Sector of Pakistan

Abstract

Prediction of Financial distress and its determinants is one of the core areas of finance; no one can deny its significance. This paper evaluates the determinants of financial distress of twenty companies of chemical and pharmaceutical sector of Karachi Stock Exchange from 2005 to 2014. Determinants like liquidity, profitability, efficiency and solvency were identified. Altman Emerging Market Z score model is used to predict the performance of chemical firms of Pakistan. The result shows that all firms are in the healthy area of the scale except GLAXOSMITHKLINE, ITTEHAD CHEMICAL Ltd and SITTARA CHEMICAL. These firms shows continuously downward trend which provides a warning signal to companies’ management. An empirical result also shows that liquidity, profitability, leverage and solvency are positively correlated