Impact of Financial Distress on the Leverage of Selected Manufacturing Firms of Ethiopia

Abstract

Leverage ratio is known to play a significant implication in financial condition firms. The main objective of the study is to examine the relationship between leverage and manufacturing firms’ financial distress in Ethiopia from nineteen-ninety nine to two thousand five. Random Effect technique, the panel data General Least Square regression method is used. The result shows that leverage has negative and significant influence on financial distress.Manufacturing firms should consider the optimal debt capacity of them. Minimize the bank loans through equity financing. Improve cash collection and reduce bad debt expenses as remedy for maintaining short term cash problem.

Keywords: Financial Distress, Leverage, Debt service Coverage, Ethiopia