Creative Commons

Financial distress has become an increasingly important subject to stakeholders of any company, because it can lead a company to bankruptcy and finally to a potential collapse. The essence of this study is to establish if financial distress influences the value of companies listed at the DAX or else the DAX 30 index, which is made up by the 30 largest by market capitalization and most liquid companies, that trade on the Frankfurt Stock Exchange (FSE) in Germany. The specific objective of the study is to determine if financial distress has a notable impact on the value of companies listed at the Dax index covering the years from 2015 to 2018. Data collected from the annual financial reports of each company and analyzed using the Microsoft Excel spread sheets and the E-Views version 10. In order to determine the exact relationship between the dependent variable (value of companies) and the independent variable (financial distress), correlation and regression analysis tests were conducted. The model that has been developed for the purposes of this study, except from the independent variable of financial distress, also included quality of assets, profitability and leverage as three more independent variables. The study revealed a strong positive relationship between the value of companies (measured by the market capitalization) and financial distress (measured by Altman’s z-score) and a negative relationship between the value of the companies and leverage (measured by debt to equity ratio). The relationship between market capitalization and profitability seems to be very week as well as with the quality of assets. Also, the study revealed a positive beta value of 0.68 between the value of the companies and financial distress, indicating that if the financial distress variable (measured by the Altman’s z-score model) increases one unit, this fact would lead to 0.68 increase on the value of companies (measured by the log of market capitalization), or in actual values $1.07 billion, holding other factors constant.