Indirect costs of financial distress

Indirect costs of financial distress

Costs such as lost business as a result of bankruptcy or liquidation.

Indirect Costs of Financial Distress

Revenue or profit that a company could have made, had it not gone bankrupt. Indirect costs of financial distress are lost business that occurs because potential customers do not wish to take the risk of using a company that may not be able to deliver its goods or services. As with other indirect costs, the indirect costs of financial distress are difficult to calculate with certainty.
References in periodicals archive ?
First, indirect costs of financial distress are likely to be much larger than the direct costs associated with bankruptcy (see, for example, Altman, (1984).
Some new proxies are proposed for the costs of illiquidity and the indirect costs of financial distress.
Thus, they have the potential to significantly reduce the direct and indirect costs of financial distress.
In this section, I have discussed a number of ways in which the careful design of financing structures in LBOs can reduce the expected direct and indirect costs of financial distress.
The variables RD and ADV will proxy for indirect costs of financial distress also through another channel.
it was argued that Tobin's q ratio (Q) represents a measure of the indirect costs of financial distress.