Issue #3 (Volume 23 2026)

Type of the article: Research Article

Abstract
This study examines the impact of investment efficiency on firms’ financial distress risk in ASEAN. Using 30,440 firm-year observations from listed firms in Vietnam, Malaysia, Thailand, Indonesia, Singapore, and the Philippines during 2015–2024, financial distress risk is measured by the O-score and Z-score. Listed firms are classified into overinvestment and underin-vestment groups based on the model residuals. Control variables are return on total assets, leverage, firm size, and growth rate. The results obtained using the FGLS estimation method indicate that overinvestment and underinvestment increase financial distress risks for ASEAN firms as measured by the O-score. Overinvestment increases financial risk (coefficient 0.3-0.63), with the most severe impact in Thailand and Malaysia (coefficient 0.95-0.99) and Vietnam (coefficient 0.39). High debt is consistently the biggest risk factor (coefficient >7.1), while profitability is the strongest risk mitigation factor (coefficient <–6.6). By contrast, Z-score results show higher safety for overinvestment and insignificant underinvestment. However, the impact of investment efficiency on financial distress risk, whether linear or non-linear, differs across countries. The results indicate an inverted U-shaped relationship in Indonesia, the Philippines, Thailand, and Vietnam, while no statistically significant evidence of a non-linear relationship is found for Malaysia and Singapore. In the Philippines and Thailand, the non-linear effect is strong, with investment-deficit coefficients of 1.9416 and 1.6463, respectively, indicating a sharp increase in financial risk in the early stages of investment cuts. These findings provide valuable empirical evidence for firms in mitigating financial distress risk and enhancing sustainable value.