Scope, measurement, impact size and determinants of indirect cost of financial distress: A systematic literature review

Abstract

Purpose

The purpose of the study is to systematically review the literature of indirect cost of financial distress to understand its scope, measurements, impact size and determinants to synthesis with future research agenda.

Design/methodology/approach

Five-step process of systematic literature review (SLR) as applied by Opoku et al. (2015) is used. SLR extracted 47 studies of indirect cost after applying specified search criteria. Data regarding measurement, impact size and determinants are presented and summarised in specified tables.

Findings

SLR showed that the study of indirect cost in developing countries is a literature gap. It is also found that opportunity loss, operating profit loss, market loss and risk premium are most studied indirect costs using legal definition or ex ante proxy of financial distress. However, future studies are recommended to use both non-linear leverage and ex ante proxy of financial distress. Future studies are also suggested to use the moderation technique while studying the determinants of indirect cost.

Research limitations/implications

Literature selection is based on specific search criteria that can miss some of the other related literature.

Originality/value

The indirect cost of financial distress is more costly and difficult to measure due to its complex concealed effects. A detailed literature of indirect cost is needed to understand the construct that eventually will help to define the future research agenda. To the best of the authors’ knowledge, no SLR of indirect cost is provided yet. Therefore, the outcome of this research will be valuable for both academicians and practitioners.

Citation

Farooq, U. and Jibran, A.Q. (2018), "Scope, measurement, impact size and determinants of indirect cost of financial distress: A systematic literature review", Qualitative Research in Financial Markets, Vol. 10 No. 1, pp. 111-129. https://doi.org/10.1108/QRFM-08-2017-0080