Financial leverage, operating cash flows and financial distress of listed non-financial companies in Vietnam

Abstract

The purpose of this paper is to evaluate the moderation of operating cash flows on the impact of financial leverage on financial distress of listed non-financial companies in Vietnam. The authors used purposive sampling method and identified a sample of 505 companies in the period 2015- 2020. Research data is collected from audited financial statements of companies, and it is organized as a balanced panel data with 3,030 observations. Accordingly, the estimated results concluded that the financial leverage has a positive impact on financial distress, the operating cash flows has a negative impact on financial distress, and this cash flow acts as a moderator to decrease the impact of financial leverage on financial distress. Based on the research results, the authors recommend that financial managers need to combine a close analysis of the decision to use financial leverage with the ability to generate money from operating activities; this is expected to ensure the financial health of companies. In addition, the article also implies that the financial distress does not become a serious problem for leveraged companies if financial managers maintain an appropriate balance among inflows and outflows from the operating activities.