Financial difficulties and firm performance among problematic firms / Noor Azira Sawal

This study aims to investigate whether the problematic firms that were listed under PN17 really suffer financial difficulties prior to their fraud perpetration by using the proxy of default risk and financial distress. Then, the effect of the default risk and financial distress will be analyzed on the performance of problematic firms. The population for this study is 175 problematic firms in Malaysia which identified based on media released by Bursa Malaysia. These firms are categorized under the PN17 Listing from year 2001 to 2012.As for this study, the results show that the default risk has significant negative effect on firm's performance among problematic firms. This implies that default risk of problematic firms could negatively affect the firm's performance. In addition, there is negative relationship between financial distress and firm's performance. The result of this study could pave way to any agency that monitors the misconducts among listed firms as financial difficulties may give early signal to warn a company of the possibility of severe fraud occurrence in the future. Moreover, the effect of financial difficulties will give some extent of indicators to public on the tendency to commit fraud due to financial desperation. This study could also help in formulating the guidelines on how to mitigate the effect of fraud perpetration among firms that faced financial difficulties.