Financial Distress and Occurrence of Financial Crisis: A Study of Commercial Banks in Ghana

Divine Atinyo, Seyram Kawor

Abstract


Financial distress has been stated by many researchers as one of the major causes of financial crisis; especially, among commercial banks. However, stakeholders of Ghana’s financial sector in general and the banking industry, specifically, appeared to pay less attention to the possible nexus between financial distress and likelihood of occurrence of financial crisis; possibly due to scarcity of empirical literature in this area. This study, thus, assessed the relationship between financial distress and financial crisis among commercial banks in Ghana, employing annual data for the period 2010 – 2019 from 22 commercial banks selected using the criterion sampling technique. The binary logistic regression was used for estimation of the relationship between financial distress and financial crisis. Financial distress was proxied by Altman’s Z-score, whilst financial crisis was dichotomised. Results revealed financial distress to have a significantly positive effect on the odds of occurrence of financial crisis among commercial in Ghana. It was recommended that leadership of commercial banks in Ghana be proactive in their actions towards minimising threats posed by financial distress to ensure that they do not escalate into crisis.

 


Keywords


Financial distress; financial crisis; commercial banks; Ghana

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References


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DOI: http://dx.doi.org/10.52155/ijpsat.v30.1.3894

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