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DOI 10.35609/afr.2026.11.1(1)

Reference to this paper should be referred to as follows: Bashir, R, Ahmad, M, Arshad, I, Sheri, S.R. (2026). Influence of financial constraints and financial resilience on financial distress in Malaysian listed firms, Acc. Fin. Review, 11(1), 28 – 39. https://doi.org/10.35609/afr.2026.11.1(1)

Received: April 10, 2026 | Accepted: June 30, 2026

Influence of Financial Constraints and Financial Resilience on Financial Distress in Malaysian Listed Firms
Rabia Bashir, Muhammad Ahmad, Imran Arshad, Sultan Rehman Sheri
Department of Accounting and Finance, Faculty of Business Management and Professional Studies, Management and Science University, Shah Alam, Malaysia
Riphah School of Leadership, Riphah International University, Islamabad, Pakistan
Department of Management and Law, Faculty of Business Management and Professional Studies, Management and Science University, Shah Alam, Malaysia Abstract

Objective - This study examines how financial constraints and financial resilience influence financial distress among Malaysian listed firms from 2015 to 2024. It additionally compares distressed and non-distressed firms to examine their performance with respect to financial constraints and financial resilience. Also, the study examines whether these patterns differ in large versus small firms.

Methodology/Technique - Using panel data on Malaysian-listed firms, the study measures financial distress with the modified Altman Z-score and classifies firms as distressed or non-distressed. To examine differences in financial constraints and resilience, the research uses the Kruskal-Wallis test. Then, to further investigate the direct effects of financial constraints and financial resilience on financial distress, the study uses dynamic panel Generalized Method of Moments (GMM) estimation.

Findings - Distressed firms face tighter financial constraints and show less resilience than their non-distressed counterparts. The dynamic GMM results further indicate that financial constraints increase financial distress, whereas financial resilience decreases it. The heterogeneous analysis shows that, for large firms, financial resilience matters most, whereas for small firms, financial constraints matter most.

Contribution - This study contributes to the literature on financial distress by simultaneously testing the roles of financial constraints and financial resilience within a unified empirical framework, whereas past research has tended to focus separately on financing frictions, the prediction of distress, or indicators of resilience. Additionally, it provides new empirical evidence from an emerging market, Malaysia, where firms' financing structures, information asymmetry, and institutional environment differ considerably from those in developed economies. It extends previous findings by demonstrating that financial constraints and financial resilience affect firms differently across firm sizes. It shows that financial constraints influence financial distress more in small firms, while financial resilience influences financial distress in large firms.

Type of Paper - Empirical

Keywords: Financial constraints; financial resilience, financial distress, Malaysia, GMM

JEL Classification: M13, M40, M49

URI: https://gatrenterprise.com/GATRJournals/AFR/vol11.1_1.html

DOI: https://doi.org/10.35609/afr.2026.11.1(1)

Pages 28 – 39

Price: USD 25