MODERATING EFFECT OF FINANCIAL SUSTAINABILITY ON ASSOCIATION BETWEEN FIRM’S FINANCIAL DETERMINANTS AND FIRM FINANCIAL DISTRESS: USING LOGIT AND ARTIFICIAL NEURAL NETWORK APPROACH

Every business is setup not only for the purpose of earning profit but also maximizing and sustaining it for undefine time period. However, due to systematic and unsystematic risk factors it could be very difficult for firms to achieve their targets. For addressing this issue, there are numerous researches have been conducted for development of many models by taking different kinds of variable (firm- level, sectorlevel, and country level) and from methodology point of view, most of studies applied MDA and logit models which are statistical models. This study considered only firms level variables because firm level variables are more significant factors in financial distress studies. Secondly, this study also investigates that moderating effect of financial sustainability on firms' financial polies on firm distress. For this purpose, this study used 10 years data from 2009 to 2018. Total sample size consists on 54 firms which is further classified into 14 distressed) and 40 non-distressed firms from textile sector of Pakistan. Group descriptive statistic, Pearson correlation and multiple moderated logistic regression analysis are applied. Additionally, artificial neural network is also applied to validate and compare the results accuracy with logit model. Finding of results indicate that out of four ratio, two ratios profitability and activity are significant. Moreover, financial sustainability moderates the association between liquidity, leverage and financial distress of firms but do not moderate relationships between profitability, activity and financial distress. Artificial neural network prediction is slightly high (83.6%) as compare to logit analysis (82.4%). However, this study is conducted by considering firm level financial factors by taking one sector but in future it can be tested on large sample size across different sectors.