THE DETERMINANT OF FINANCIAL DISTRESS IN INDIAN REAL ESTATE AND CONSTRUCTION INDUSTRY

This study attempts to determine the factors accountable for probability of financial distress in the context of real estate and construction industry of India. Financial ratios covering four broad categories namely Liquidity, Solvency, Activity and Profitability have been used as predictor variables. Further this study has applied the linear probability, probit and logit models in order to scrutinize the preeminent predictor of financial distress. The results conclude that there is slight impact of selected predictors on financial distress happening. The profitability measure return on equity (ROE) is a significant predictor which is negatively related to the probability of financial distress. This implies that return on equity (ROE) is the most preeminent predictor that classifies the financially healthy and financially weak real estate and construction companies. Hence, to avoid financial distress, the real estate and construction industry must improve return on equity (ROE). Furthermore, the study also indicates that the real estate and construction industry are not adopting conservative capital structure.