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The Economics and Finance Letters

December 2020, Volume 7, 2, pp 148-161

Drivers Behind the Financial Insolvency: An Empirical Study on the Textile Industry in Bangladesh

Sonia Rezina

,

Md. Shahnawaz Mostofa

Sonia Rezina 1

Md. Shahnawaz Mostofa 2

  1. Assistant Professor, School of Business, Uttara University, Dhaka, Bangladesh. 1

  2. Senior Lecturer, School of Business, Uttara University, Dhaka, Bangladesh. 2

Pages: 148-161

DOI: 10.18488/journal.29.2020.72.148.161

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Article History:

Received: 08 July, 2020
Revised: 14 August, 2020
Accepted: 02 September, 2020
Published: 16 September, 2020


Abstract:

The main purpose of the research study is to assess the financial soundness of the textile industry in Bangladesh. The effects of financial ratios have also been examined. The research has been designed based on published quantitative data in the stock market. 35 listed companies that consist of A-Category, B-Category and Z-category companies were analyzed. In this research study, five financial ratios have been analyzed and tested using the Altman Z-score model. Statistical correlation among the financial ratio was examined to depict the picture of financial distress among the different categories of companies in Textile industries in Bangladesh. Most of the A category companies are in Safe Zone or financially sound, B category companies are into Grey Zone and Z category companies are in distress zone. The outcome of the study can be valuable for the financial managers to take important managerial as well as financial decisions, the shareholders to take appropriate investment decisions and bankers to evaluate the prospective borrowers’ credit risk and renew loans of the concerned textile manufacturers of the country.
Contribution/ Originality
This study is one of the very few studies which have examined the direct relationship of financial ratios with Z-score values regarding different categories of listed textile companies in the stock exchange by using panel data analysis.

Keywords:

Insolvency, Altman Model, Financial health, Panel data, Textile industry, Bangladesh.

Reference:

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Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance, 23(4), 589-609. Available at: https://doi.org/10.1111/j.1540-6261.1968.tb00843.x.

Altman., E. I. (1983). Corporate financial distress: A complete guide to predicting, avoiding and dealing with bankruptcy. Toronto: Wiley & Sons.

Chowdhury, A., & Barua, S. (2009). Rationalities of z-category shares in Dhaka stock exchange: Are they in financial distress risk? BRAC University Journal, 1(1), 45-58.

Fashion2Apparel. (2017). Bangladesh textile industry: Present scenario, future prospects and challenges. Retrieved from: http://fashion2apparel.blogspot.com/2017/06/bangladesh-textile-industry.html .

Fibre2Fashion. (2013). Current scenario of the textile industry in Bangladesh. Retrieved from: http://www.fibre2fashion.com/industry-article/6944/current-scenario-of-the-textile-industry-in-bangladesh .

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Mizan, A., & Hossain, M. (2014). Financial soundness of cement industry of Bangladesh: An empirical investigation using z-score. American Journal of trade and Plicy, 1(1), 16-22.

Mizan., A., Amin, M., & Rahman, T. (2011). Bankruptcy prediction by using the Altman Z-score model: An investigation of the pharmaceutical industry in Bangladesh. Bank Parikrama, 36(2-4), 33-56.

Ramaratnam, M. S., & Jayaraman, R. (2010). A study on measuring the financial soundness of select firms with special reference to Indian steel industry–An empirical view with Z score. Asian Journal of Management Research, Integrated Publishing Association, India, 724-773.

Sori, M., Hamid, M., Nassir, A., & Mohamad, Z. (2001). Forecasting corporate failure in Malaysian industrial sector firms. Asian Academy of Management Journal, 6(1), 15-30.

Venkataramana, N., Azash, S., & Ramakrishnaiah, K. (2012). Financial performance and predicting the risk of bankruptcy: A case of selected cement companies in India. International Journal of Public Administration And Management Research, 1(1), 40-56.

Yamane, T. (1967). Statistics: An introductory analysis (2nd ed.). New York: Harper and Row.

Statistics:

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Funding:

This research project was funded by CRT (Centre for Research and Training), Uttara University, Dhaka, Bangladesh in the year 2018-2019.

Competing Interests:

The authors declare that they have no competing interests.

Acknowledgement:

Authors want to convey their thank to Professor Dr. Debi Narayan Rudra Paul, Director CRT and Professor Dr. ASM Sahabuddin, Additinal Director CRT who motivated young faculties to get engaged in the field of research. Author would like to show our gratitude to the companies for disclosing their valuable financial information for our research. Authors would also like to show our gratitude to the researchers for sharing their research work that provides us a guideline to initiate this research work and we thank “anonymous” reviewers for their knowledgeable insights in our research work.

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