Predictors of Financial Distress: Evidence from France-CAC 40 Index

Abstract

Financial distress occurs when a business is unable to generate adequate revenue or money to satisfy or pay its financial commitments. High fixed costs, a high percentage of illiquid assets, or revenue that is sensitive to economic downturns are all possible reasons for financial distress. Ignoring indicators of financial distress until they become out of sight can be harmful.
As a result, the company's liabilities become too high and cannot be repaid; there can be a situation, when severe financial distress can no longer be repaired. Considering the critical importance for firms and stakeholders such as investors, lenders, and capital market players in general, academics continue to focus on predicting financial distress.

This study intends to predict the financial distress for a developed nation. Evidence from France - developed country - as part of the European Union and G8 Group is considered for this study. The selected sample for the study consists of 63 listed companies of France CAC 40 Index. The models used for the methodology are Altman’s Z- score Model and Kroeze Model. The secondary data of financial statements is the basis for analysis. The required information for analysis is obtained from Thomson Reuters (Refinitiv) Database. The financial data used is from financial statements till 2020.

Keywords: France, France CAC 40 Index, Financial distress

JEL Classification: G00 , G01