THE EFFECT OF FINANCIAL DISTRESS ON THE VALUE OF FIRMS QUOTED ON NIGERIAN EXCHANGE GROUP (NGX)

This study investigates the effects of financial distress on the value of firms listed on the Nigerian Exchange Group (NGX) between 2018 and 2024, and examines whether distress risk is adequately priced in the market. Adopting a correlational research design, the study targeted a population of 67 listed firms, from which a sample of 41 companies was determined using Slovene’s formula at a 10% margin of error. Secondary data was sourced from audited annual financial reports, the NGX Investor Handbook, and firms’ publications, covering a six-year period. Key financial distress indicators examined include Equity to Debt Ratio (EDR), Cash Flow to Debt Ratio (CFDR), Interest Coverage Ratio (ICR), Debt to Asset Ratio (DAR), and Current Ratio (CR), with firm value measured as the log of market capitalization. Descriptive statistics revealed varying central tendencies and dispersions across the variables, with high variability observed in ICR and DAR, and notable skewness and kurtosis indicating non-normal distributions. Correlation analysis showed strong positive relationships between EDR, ICR, CR, and firm value, while DAR exhibited a strong negative association. Regression analysis yielded a Multiple R of 0.99998 and an R² of 0.99997, indicating that approximately 99.997% of the variation in firm value is explained by the model. Altman’s Z-score positively influenced firm value, whereas leverage and return on equity showed negative effects. Hypothesis testing led to the rejection of all null hypotheses except for CFDR, which had no significant impact. The findings suggest that financial distress indicators particularly leverage, liquidity, and interest coverage are significant determinants of firm value in the Nigerian capital market. The results underscore the importance for investors, managers, and policymakers to monitor these metrics as early warning signals of financial instability, thereby enhancing market efficiency and firm valuation.