Operating performance, cash flows, and fixed asset investment in financial distress prediction: evidence from listed construction firmsin Vietnam

Abstract

The paper presents data-driven findings regarding the influence of operating efficiency, business cash flows, and fixed asset investments on the likelihood of financial distress (FD) among 117 construction enterprises listed on Vietnam’s stock market during the period 2011–2023. Employing the FGLS method to address issues of heteroskedasticity and autocorrelation, the study finds that higher operating efficiency (ROA) reduces the likelihood of FD in the X-Score model but increases FD risk in the other models. Other variables, including cash flows from operating activities, total asset turnover, gearing ratio, the share of fixed assets in total assets, and firm size, also significantly affect FD, but the magnitude and direction of impact vary depending on the model used. These differences may stem from the construction industry's characteristics, where a short-term pursuit of high profitability could lead to neglect of sustainability factors, acceptance of high-risk projects, excessive financial leverage, or compromised construction quality. The study underscores the importance of selecting an appropriate model for evaluating FD.