The relationship between capital structure and financial distress in manufacturing

firms in Kenya

NAME: DAVID OTIENO MOLA

REG NO: D61/36401/2020

Contents
CHAPTER ONE: INTRODUCTION........................................................................................2
1.1 Background of Study........................................................................................................3
1.2 Financial Distress.............................................................................................................4
1.3 Financial Distress and Capital Structure..........................................................................5
1.4 The Study's Objectives.....................................................................................................6
1.5 Value of the Study............................................................................................................7
CHAPTER TWO: LITERATURE REVIEW............................................................................8
2.1 Introduction......................................................................................................................8
2.2 Theoretical Framework....................................................................................................9
2.3 Capital Structure Irrelevance Hypothesis.........................................................................9
2.4 Trade-off Theory............................................................................................................12
2.5 Pecking Order Theory....................................................................................................13
2.6 Conceptual Framework..................................................................................................15
2.7 Financial Distress...........................................................................................................15
2.8 Research Gap..................................................................................................................16
CHAPTER THREE: RESEARCH METHODOLOGY...........................................................17
3.1 Introduction....................................................................................................................17
3.2 Research Design.............................................................................................................18
3.3 Population.......................................................................................................................18
3.4 Sample Design................................................................................................................18
3.5 Data Collection...............................................................................................................19
3.6 Data Analysis..................................................................................................................19
References............................................................................................................................21

CHAPTER ONE: INTRODUCTION

1.1 Background of Study

Long-term debt, particularly short-term debt, common stock, as well as preferred equity make

up a firm’s capital structure. The capital structure describes how a company finances together

with its operations and growth by combining several funding sources. Bonds and long-term

notes payable are examples of debt, whereas ordinary stock, preferred stock, and retained

earnings are examples of equity. Short-term debt, such as that required for working capital, is

also considered part of the capital structure (Aburub, 2012).

The growth of the corporate sector is critical to every country's economic success. The lack

of financial resources has been recognized as a primary cause for firms in underdeveloped

nations failing to start or grow. If companies in developing nations are to play an expanding

and significant role in delivering employment as well as income in the form of profits,

dividends, and salaries to families, they must be able to fund their operations and evolve. It is

important to investigate the drivers of companies' financing or capital structure choices in

developing nations to comprehend how they fund their activities (Gathogo and Mary, 2014).

According to Myers (1984), the majority of capital structure research has concentrated on the

debt-to-equity ratios found on the right-hand side of corporate balance sheets. The research of

capital structure seeks to understand the combination of assets and financing sources utilized

by businesses to finance actual investment. Capital structure, according to Brigham and

Houston (2007), is the method by which a company finances its activities, which might be via

debt, equity, or a mix of both.

It's not easy to decide how to fund a company, and no guarantee, that debt is always the best

option. Debt may be beneficial in some situations while being detrimental in others. Studies

on capital structure have attempted to resolve this problem and its consequences, but the

results have been equivocal. While there is an indication that an alternative capital structure
present in conventional schools, there is also proof that there is no such thing as an ideal

capital structure. According to financial literature, advocates of the optimum capital structure

perspective belonged to the conventional school, and they believed that the profit of the

company could be optimized by lowering the cost of capital via careful debt management

(Omondi, 1996).

In Corporate Finance, scholars are particularly interested in capital structure. The impact of

the financial crisis on stock markets throughout the world has reignited worries about

businesses' excessive leverage as well as its implications on overall financial performance.

Savings, financial distress, transaction costs, adverse selection, and agency cost are among

the major variables determining a business's debt decision and its influence on firm

performance, according to most models analyzing the capital structure of enterprises (Barclay

and Smith, 1996).

Essentially, capital structure policy is an exchange between the risks that investors bear and

the projected rate of return. Because of the significance of financing decisions in a

corporation, company management must determine which criteria must be met when making

a financing decision. This is created to support firm management in creating investment

choices, such as whether to borrow a loan or issuing new as an alternative (Utami, 2019).

Behavioural studies that look at a company's finance focus on capital structure. A firm's debt

to equity ratio must be separated when controlling its capital structure. All of the company's

financial transactions should be tracked and kept in a well-organized account control system.

Ultimately, the capital structure serves as the foundation for determining the effect of a firm's

investments and costs (Saarani et al., 2013).

1.2 Financial Distress

Financial distress is a phrase used in corporate finance to describe a situation in which a

company's commitments to creditors are violated or only partially met. Bankruptcy is a

possibility in some cases of financial difficulty. Financial hardship, in a broader and more

fundamental meaning, is a decrease in financial efficiency caused by a cash shortage.

Financial distress occurs when a company's commitments are not fulfilled or are unlikely to

be met (Kotweg, 2007).

Regardless of their size or type, financial distress is one of the most serious dangers to many

businesses across the world. The phrase "financial distress" has a negative connotation and

refers to a company's financial condition when it is faced with a temporary lack of cash and

the problems that this causes in meeting financial commitments on time and in full. When a

manufacturing firm is functionally bankrupt and/or illiquid, it is considered financially

distressed. Insolvency occurs when a company's assets are insufficient to meet its liabilities.

Situations in which a company's operational cash flows are insufficient to meet existing

commitments, forcing the company to take remedial action (Kariuki, 2013).

The finance element, according to Memba and Nyanumba (2013), is the primary source of

financial difficulty in the corporate sector. Furthermore, the capital structure was listed as one

of the nine drivers of company financial difficulty. It concluded that rising financial leverage

increases financial hardship in businesses. According to these empirical findings, the capital

structure should harm corporate profitability, liquidity, firm value, and investment growth,

which have been recognized as important markers of the financial crisis. An examination of

the literature, however, reveals that different research has produced contradictory results

(Hastuti, 2015).
1.3 Financial Distress and Capital Structure

When businesses are unable to pay their financial responsibilities, they are said to be in

financial difficulty (Pindado et al., 2008: 997). Financial hardship has a significant influence

on the operations and finances of businesses due to the direct and indirect expenses of the

bankruptcy process1. Additionally, financial distress might be caused by macroeconomic or

firm-specific causes. Economic recessions, the implementation of restrictive monetary policy,

and a drop in the stock index are all macro variables that raise the risk of financial collapse

(Ayan and Değirmenci, 2018).

The literature on the relationship between capital structure and financial crisis has produced

conflicting results. For example, studies found that capital structure harms financial distress

(Nassar, 2016). Whereas other experiments found that capital structure has a positive impact

on financial distress (Mujahid and Akhtar, 2014). According to Muigai (2017), debt has a

negative and substantial impact on financial distress, but this effect becomes positive and

statistically significant as the business size grows.

Furthermore, analysis by other researchers determined that capital structure had little impact

on financial hardship. Setting the proper capital structure policy is so important that it has an

impact on a company's financial performance and so plays a vital part in determining its

competitiveness and capacity to function as a going concern (Kodongo et al., 2015).

The discrepancy in empirical observation is perplexing, and it necessitates a thorough

examination into the relationship between capital structure and business financial crisis in the

country. Using Altman's Z-score of corporate financial distress, this study analyzes the

influence of capital structure on corporate financial distress of manufacturing businesses in

Kenya.
1.4 The Study's Objectives

The report's aims were divided into two categories: general objectives and specialized

objectives.

The goal of the study was to see how capital structure affected the financial distress of

manufacturing companies in Kenya.

The specific objectives

1. Determine the impact of financial leverage on manufacturing firms.

2. To investigate the impact of debt maturity on manufacturing businesses facing financial

difficulties.

3. To assess the impact of equity structure on manufacturing businesses financial difficulty.

4. To look into the impact of asset structure on manufacturing firms facing financial

difficulties.

5. To determine if company size has a moderating influence on the link between capital

structure and financial distress among firms facing financial distress.

6. To see if the manufacturing sector has a moderating influence on the connection between

capital structure and financial distress.

1.5 Value of the Study

The study's findings shed light on the importance of capital structure in predicting whether or

not a company is in financial difficulty. This information will make a positive contribution to

scholarship since it will set the tone for future study in this subject. The study's findings will

help educate industry practitioners involved in financing choices by providing them with a

critical point of comparison on the importance of companies determining and maintaining an

appropriate financing structure to protect them from financial hardship. This will increase

investor trust in the Kenyan capital market while also increasing shareholders value. The

policymakers will be assisted in developing appropriate procedures for continually

monitoring and evaluating businesses' funding. This might be accomplished by setting

industry-specific debt levels that would guarantee that businesses are not excessively exposed

to the danger of financial collapse, which would lead to the eroding of investor value.
CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

Theoretical and empirical literature will be examined in this chapter. Empirical research on

the relationship between the capital structure of a company and financial distress, as well as

ideas on the subject, are examined concerning the study's goal. This section goes through

prior research that has been done about the current topic. The concept and empirical evidence

on the link connecting capital structure and financial distress are reviewed in these

subcategories. The goal of this part is to find any possible gaps in the research that has been

done on capital structure and financial distress as the key factors.

2.2 Theoretical Framework

In general, capital structure refers to the company's mix of different types of finance used to

fund its activities (Abor, 2005). Though a variety of variables have been blamed for corporate

financial difficulty, theorists have long regarded financial structure to be a fundamental

predictor of company financial stability. The present theories, on the other hand, suggest a

contradictory link between capital structure and company financial hardship. Although some

models predict a positive association between the two variables, others predict a negative

correlation, and yet others discover no link at all. It's worth noting that there is currently no

widely recognized capital structure theory, and there isn't a reason to expect one any time

soon. The primary theoretical approaches that give insight into the link connecting capital

structure and a firm's financial crisis are discussed in this chapter.

2.3 Capital Structure Irrelevance Hypothesis

Modigliani and Miller's famous statement is the starting point for capital structure theory.

The theory of corporate capital structure has been a topic of interest to financial analysts

since the release of Modigliani and Miller's irrelevance theory of capital structure in 1958.
Over time, three primary capital structure theories have evolved that differ from the

principles of ideal markets (under which the irrelevance model works). One being the trade-

off theory, which proposes that companies weigh the advantages and disadvantages of debt or

equity to arrive at an optimal capital structure after considering market imperfections

including taxation, bankruptcy costs, and agency costs.

Modigliani and Miller (1958) proposed that capital structure has no effect on corporate

financial distress in a perfect capital market, in which taxes and transaction fees are non-

existent, companies operate in a homogeneous risk profile, firms pay 100 per cent dividends,

and shareholders can borrow and lend at the same interest rates as corporations. They claimed

that financial hardship is determined by a mix of business risk (cost of capital) and earnings

capacity (return on assets), not by how businesses are funded.

Borrowing and lending around the same interest rate are feasible for businesses and

individual investors, allowing for domestic leverage, companies operating in comparable risk

classes and operational leverage, interest paid on the debt it doesn't save additional taxes, and

companies follow a 100 per cent dividend payment policy. Under such conditions, MM

theory has shown that there is no optimum debt-to-equity ratio and also that capital structure

has no bearing on shareholder value.

MM (1958) provided this presupposition in their landmark article, arguing that the value of a

levered business is similar to the worth of an unlevered firm. As a result, they argue that

management should be unconcerned with capital structure and must be allowed to choose the

debt-to-equity ratio. Hirshleifer (1966) and Stiglitz (1966) made significant contributions to

the MM method (1969). In addition, they assert in Proposition that increasing leverage raises

the company's risk and, as a consequence, the cost of stock rises. However, the company's
WACC remains constant since the greater cost of debt compensates for the greater cost of

equity.

Jensen and Meckling (1976) presented the agencies expenses component to this concept,

arguing that while debt provides particular benefits to the company, it also raises agency

costs. The main agent conflicts that occur among debt holders, investors, and management,

according to the author, are the source of agency problems. They claimed that, on the one

side, administrators may not be completely committed to increasing shareholder value, but

rather to serving their objectives, leading to free cash flow waste by allowances and sub-

optimal spending.

Myers (1977) proposed the expenses of bankruptcy aspect by arguing that, while debt

financing helps promote the firm by providing tax-deferred cash flows, the advantages are not

limitless. Apart from the agency expenses, the author claimed that debt carries the danger of

bankruptcy, which is linked to the potential of defaulting on debt payments. He hypothesized

that when a company utilizes more debt, its financial risk rises, and stock investors become

less willing to give further money. Furthermore, as a reward for taking on greater risk,

investors want a greater return in terms of dividend payout ratios.

Debt holders, like equity investors, are less eager to give new money or demand high rates of

interest on debt, resulting in a higher rate of cash outflow for the company. The theory found

that the tax-shield credits provided by debt to the company are outweighed by the present

values of insolvency and agency expenses by integrating the theoretical impacts of agency

costs as well as a bankruptcy risk. In essence, the theory states that as debt levels rise, the

company's value rises correspondingly until a threshold is reached where additional debt

usage raises both organization and insolvency costs, lowering the company's value.
The capital structure irrelevance hypothesis was reasonable in principle, but it was built on a

series of impractical assumptions. As a result of this idea, there has been a lot of research into

capital structure. Despite the fact, their idea was correct in principle, a society without taxes

did not exist in reality. Modigliani and Miller (1963) included the burden of taxation on the

cost of capital and company value to make it more realistic. With the existence of corporation

taxes, the firm's value rises as a result of the tax shelter.

Interest on borrowed capital is an allowable deduction from a company's income, lowering

the company's net tax bill. This would provide an additional benefit of employing borrowed

capital by decreasing the company's capital cost. A series of studies devoted to showing

irrelevance as a theoretical and empirical matter was sparked by flaws in the MM hypothesis.

Many more hypotheses that add to the capital structure theory have emerged as a result of the

MM theorem, and validating any of them is difficult. Although the MM concept has flaws, it

cannot be fully disregarded or dismissed.

2.4 Trade-off Theory

The trade-off theory, which is an elaboration of the MM theory, states that the optimal capital

structure of a business is determined by firm and agency effects, bankruptcy costs, and

corporation tax. As a result, a business must pick the degree of debt that optimizes the tax

advantages. According to the idea, there are related advantages (such as tax benefits and

agency cost benefits) and costs (such as financial hardship and agency costs) when a

company is funded with debt.

The trade-off hypothesis, in contrast to the irrelevance theory, suggests modest gearing

settings. Additionally, it supports the existence of an ideal or goal capital structure that

companies strive to obtain and maintain through time to maximize shareholder value

(Brounen, De Jong, & Koedijk, 2006). A value-maximizing business with a low likelihood of
financial crisis should employ debt to its full capacity, as per Hovakimian, Hovakimian, and

Tehranian (2004).

Various trade-off approaches have been presented in the literature that takes into

consideration even more variables. Auerbach (1985), for instance, developed and

implemented an updated trade-off approach and concluded that riskier and rapidly developing

businesses should borrow less. Fischer, Heinkel, and Zechner (1989) carried out research

using a range of rich parameters, claiming that capital structure is also influenced by debt-

contract limits, acquisition opportunities, and managerial repute. Neither one of those

theoretical and empirical advancements, nevertheless, have been able to completely replace

the traditional form.

This concept is important to the research because it explains how debt financing boosts

business value by allowing for tax deductions. In furthermore, the theory adds the notion of

capital structure, which illustrates how capital structure may have a detrimental impact on a

business by raising the agency costs involved with borrowing.

When deciding on a capital structure, a company must balance its expenses against the

benefits of debt financing to maximize its value. According to Ross et al. (2008), a company's

value can be maximized whenever the proportional costs of debt as well as marginal benefits

of debt are equal.

Cook and Tang (2010) found that in economies that are experiencing strong economic

circumstances, companies typically move quickly to their goal debt rate than in economies

that are experiencing terrible economic conditions, lending credibility to the trade-off

argument.

Falling back on a loan exposes a company to distress costs when it uses too much debt to

support its activities (Eboiyehi and Ikpesu, 2017). According to this, the trade-off hypothesis
recommended that the tax benefits of debt financing be modified to account for the price of

hardship that may occur when debt levels grow (Brounen and Eichholtz, 2001).

2.5 Pecking Order Theory

The informational asymmetries factor was added to Donaldson's pecking order concept by

Myers and Majluf (1984). They claimed that the impact of information asymmetries between

the company and capital providers causes the relative costs of financing to differ between the

various sources. For example, an internal source of financing in which the funds supplier is

the business will have more knowledge about the company than marketable such as debt

holders and equity holders, and hence expect a greater rate of return on the investment. This

indicates that obtaining external money is more expensive than employing equity financing.

Another aspect of showing the information asymmetry influence on funding is that, in most

cases, insiders, such as managers and executives, have more information about the product

than others in terms of its potential earnings. The lack of information among outsiders causes

them to underrate the value of the company. Managers stop issuing cheap shares only if the

value transfer from current to new shareholders is more than compensated by the net present

value of the growth potential, based on the idea that they operate in the best interests of

stockholders.

As a result, investors view a company's issue of shares as an indication of overpricing. If

external funding is required, the company will choose secured debt over hazardous debt, and

companies will only issue common stock as the last option. Companies would prefer internal

sources of capital over costly external financing, according to Myers and Majluf (1984). As a

result, the pecking order hypothesis predicts that businesses that are successful and hence

create high earnings would utilize less borrowed capital than companies that do not yield
greater earnings. If domestic finances are insufficient, the administrators will initially issue

debt to protect current shareholders from diluting effects.

In opposition to the trade-off theory, this approach considers interest tax shelters and the risk

of bankruptcy to be secondary concerns. According to the idea, gearing proportions are

modified when outside funds are required due to a mismatch between inner cash flow (net of

dividends) and genuine investment opportunities (Shyam-Sunder & Myers, 1999). This

implies that only companies whose investment demands outstripped their ability to produce

cash domestically would need to take on extra debt. In contrast to the trade-off theory, this

approach takes into account interest tax shelters and the cost of capital the fear of insolvency

is merely a minor consideration.

The pecking order hypothesis implies that there is a clear finance hierarchy and therefore

there is no well-defined goal debt ratio, as stated by the trade-off theory. To protect value and

company stability, this theory recommends using internal funds rather than external funds

that include debt and equity. The consequence is that greater usage of external capital (debt

and equity) hurts the company's value and raises the likelihood of financial trouble.

2.6 Conceptual Framework

A conceptual framework is a visual depiction of the connections between both the study's

variables. Characterization of the interrelationship between individual components of capital

structure and financial distress of manufacturing companies is conducted based on the

theoretical literature examined by the study. Furthermore, the research model takes into

account the moderating influence of company size and the listing industry.

2.7 Financial Distress

In the finance literature, the issue of measuring financial distress has a strong record. Scholars

and theoreticians have studied this topic for decades, creating novel methods for predicting
financial difficulty and bankruptcy. Financial distress forecasting approaches, according to

Outecheva (2007), are either accountancy or marketplace based, based on the type of material

used. While accounting-based methods use information from financial accounts to indicate

financial difficulties, market-based models use data from shares listed on the capital market.

Each method for determining financial hardship has its own set of benefits and drawbacks.

First, the efficient market hypothesis, which underpins market-based models, is a big

argument that can lead to biases in calculated default probability (Outecheva, 2007).

Furthermore, the studies depend on future asset market value & property return volatility,

which are not readily visible in the marketplace and must be predicted. Despite the

drawbacks of market-based models, it was observed that the baseline data used in these

models may be directly extracted from marketplace prices and offers more current asset

values depending on the frequency selected.

Accounting-based models, according to Muller, Steyn-Bruwer, and Hamman (2009), have

been chastised for using financial data, such as profitability, to make decisions. Liquidity and

solvency ratios are historical and may not reflect current conditions. the firm's current state In

addition, accounting data is generated using cautious assumptions. Accounting rules may

cause key elements to be misstated (Bellovary, Akers, Giacomino, and Giacomino, 2007).

Gharghori, Lee, and Veeraraghavan, on the other hand, believe that despite these apparent

restrictions, accounting information is visible and accessible, according to Muller, Steyn-

Bruwer, and Hamman (2009). As a result, it's a good candidate for predicting distress.

Furthermore, according to Hillegeist et al. (2004), accounting-based models have become the

most common analytical method for financial distress evaluation in empirical research due to

their relative convenience and intrinsic correctness.

Beaver (1966) was the first to use a univariate analytic model to forecast financial hardship

by applying multiple financial ratios one at a time. He used a categorical classification test of

the prediction power of the 30 chosen financial variables in his research of failed and non-

failed companies in the United States from 1954 to 1964. The researcher developed six ratios

based on the study's findings, which were deemed the most significant predictors of business

failure. Cash flow to total debt, net profit to asset value, total debt to total assets, working

capital to total assets, current ratios, and the no-credit interval were among the characteristics

examined. He demonstrated that up to five years previous to the bankruptcy, the chosen

financial measures were significantly lower among failed businesses in contrast to non-failed

companies.

2.8 Research Gap

According to a study of the literature, the bulk of previous empirical research has looked at

the impact of capital structure using specific measures of financial hardship. Profitability,

liquidity, company value, and stock returns are examples of these variables. As per Huang

(2006), a firm's profitability may not give a comprehensive assessment of the firm's overall

quality. This is because businesses can be successful while yet being underfunded.

Furthermore, according to Hoque et al. (2014), profitability metrics only give a restricted

assessment of a company's total financial health. The adopts Altman's Z-score of financial

hardship to close this disparity. This model is significant because it highlights capital

structure (leverage), income, and liquidity indicators as major predictors of the financial

crisis.

This conclusion implies that highly leveraged companies are typically financially troubled.

Due to its simplicity, the univariate model was panned for a variety of reasons. To begin

with, employing a single financial ratio to forecast failure was thought to be a restricted
method that may result in inconsistent and perplexing categorization findings for different

ratios within the same business (Altman, 1968).

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

The methodologies and procedures to be used to conduct this research are described in this

chapter. It includes the study's research design, target population, sample frame, census, data

collecting and analysis methodologies, and methods for determining the appropriateness of

the data utilized. The empirical models generated by the study are also detailed in this

chapter, as are the methodologies for estimating and evaluating the model.

3.2 Research Design

According to Kothari (2004), the research design is a master plan that lays out the techniques

and procedures for gathering and evaluating data. A research design is a framework, or

blueprint, that directs the research study from the creation of research hypotheses through the

presentation of outcomes. The research was conducted using a quantitative research

approach. Because the data gathered on the research variables was in profitability metrics and

therefore of a quantitative character, this research method was used for the study. The

profitability and other ratios calculated for each company during the research period were

then converted into panels. This method is appropriate for studies in which the cross-sectional

and continuous features of the units under investigation are key components.
3.3 Population

A population is a collection of people, events, or things that have similar traits and meet a set

of criteria (Mugenda & Mugenda, 2003). The report's sample should consist of non-financial

firms that are involved in manufacturing. 

The banking and insurance sectors were excluded from the research because they are subject

to stringent restrictions for capital holdings and solvency operations. Because of this

variability, data analysis for the study variables is challenging. Individual

manufacturing businesses listed on the NSE were used as the report's level of observation.

3.4 Sample Design

A sampling frame, according to Kothari (2004), is a list of all the objects from which a

significant percentage is chosen for research.

The census technique entails a complete enumeration of the units that make up the target

population (Kothari, 2004). Because the study's target population should consist of 40 non-

financial businesses listed on the NSE, a census of all firms was undertaken. A census is

preferable when the population is small and controllable, according to Mugenda & Mugenda

(2003).

3.5 Data Collection

Over the next few months, secondary data will be collected from certified financial

statements and annual reports of individual non-financial businesses. The secondary

information collecting instrument listed will be used to gather the information. The tool

will assist in the collecting of accounting data required to calculate Altman's Z-score

indicating financial hardship. Financial leverage, debt maturity, ownership structure, asset

tangibility, and sales growth statistics were also collected.

Data will be gathered by going to the web pages of the manufacturing firms and obtaining the

published income reports for the 10 years under consideration.

Information on particular components will be typed in for each business for each year using a

data collecting tool. To ensure the accuracy of the gathered data will be cross-checked to

manual summaries available from the NSE website for the research period. The information

will then be entered into an Excel spreadsheet and translated into ratios. After that, the

proportions will be transformed into panels that could be analyzed.

3.6 Data Analysis

The study gathered secondary data from all 40 manufacturing businesses. This method

is influenced by econometric theory, which recommends panel data analysis to improve

regression findings. One of the most important advantages of panel data is that it allows a

researcher to adjust for unobserved heterogeneity and offers both cross-sectional and period

dimensions, reducing the risk of variable estimate error.

The Excel software will be used to determine the ratios relevant for the research variables in

each business overtime after extracting information from published accounts and NSE

handbooks. The condition of financial distress, financial leverage, debt maturity, equity

structure, asset structure, sales growth, and firm size of non-financial businesses are to

be summarized and profiled using descriptive statistics that included measures of central

tendency, dispersion, and skewness. Stata 11 was used to do a panel regression analysis.

The researcher will use Stata Version 11 to do a panel regression study to see how capital

structure factors influenced non-financial businesses' financial hardship. Lastly, to evaluate

the significance of the estimated model and particular independent variable, statistical

methods such as the F-test (Wald test) as well as the t-test will be utilized. Tables and graphs

will be used to represent the study's findings.

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