Impact of Financial Distress on Firm Value: empirical evidence from Nigeria and Kenya.

The report is on how different factors could impact firm’s value. In this write-up, I would be presenting the comparative figure between Nigeria and Kenya for key variables below:

1. R. square.

R Square tell us the percentage of how independent variable affect our dependent variable in the overall model. It measures in percentage terms the model explained the two relationship.

For Nigerian companies, the R square is 78% which state that 78% change in dependent variable is cause by independent variable and 22% is explained by other factors. For Kenyan Companies, the R square is 99% suggesting that the model explained 99% change between dependent and independent variable

• The P – Value and Coefficients

P-value measure the direction and weight of relationship between dependent and independent variable. P- value of 0.05 suggest a strong relationship while greater than 0.05 suggest weak relationship and impact.

For Nigerian Companies, there is a significant negative relationship between firm value and sales in USD, a unit increase in sales would lead to 0.35 decrease in firm value. Equally, there is a significant positive relationship between altman z score and firm value, a unit increase in altman z score would lead to 0.59 increase in firm value. There is a weak positive relationship between ebit to current liabilities, a unit increase in ebit to current liabilities ratio would lead to 0.04 increase in firm value. There is equally negative relationship between total assets to total debt, a unit increase in total equity to debt would lead to decrease of firm value by 0.59. There is a significant negative relationship between current assets to total liabilities ton firm value, a unit increase in current asset to total liabilities would lead to 0.97 decrease in firm value. There is a weak positive relationship between ROCE to firm value, a unit increase in ROCE would lead to 0.003 increase in firm value. There is a weak negative relationship between profit before tax margin to firm value, a unit increase in profit before tax margin would lead to decrease of firm value by 0.009.

For Kenyan Companies, there is a significant negative relationship between sales and firm value, a unit increase in sales would lead to 2.0 decrease in firm value. There is a strong positive relationship between altman z score and firm value, a unit increase in altman z score would lead to 1.1 increase in firm value. There is a weak negative relationship between ebit to current liabilities, a unit increase in ebit to current liabilities would lead to decrease of 0.19 in firm value. A weak positive relationship between total equity to debt ratio, a unit increase in equity to debt ratio would lead to 0.27 increase in firm value. A significant negative relationship between current assets to total liabilities, a unit increase in current assets to total liabilities ratio would lead to decrease by 3.5 in firm value. Weak positive relationship between ROCE, a unit increase in ROCE would lead to increase of 0.0005 of firm value. Lastly, the is a weak negative relationship between profit before tax margin to firm value, a unit increase in profit before tax margin would lead to a decrease in value by 0.0000002.

From the forgoing therefore, companies both in Nigeria and Kenya should management properly their altman z score which measure financial distress in the company which would build investors’ confidence and lead to increase in value. Increase in sale has a more negative implication in firm value in both Nigeria and Kenya. They should not strive to increase their current assets to total liabilities since this could lead to decrease in firm value by 3.45.

Also, Tobinq, is equally relevant in measuring firm value both in Nigeria and Kenya. Tobinq measure firm value by taking into consideration assets replace cost.