UNVEILING KEY DRIVERS OF FINANCIAL DISTRESS IN DEVELOPING ECONOMIES: A COMPREHENSIVE ANALYSIS

Abstract

In the case of developing countries, this study looks at the factors that contribute to financial distress between 2002 and 2021. For empirical analysis, a total of 35 developing economies have been chosen. The explanatory factors in this study include the budget deficit, balance of payments, fiscal and monetary policy, gross domestic products, political instability, corruption, and inflation; the dependent variable is financial distress. A fixed and random effect model has been used to explore the effects of explanatory factors on financial distress. The study shows that in developing nations, factors such as the balance of payments, monetary policy, political instability, and corruption significantly influence financial distress, but factors such as the budget deficit, fiscal policy, gross domestic product, and inflation have little effects. The results show that executing efficient fiscal and monetary policies, keeping a close eye on the budget, managing the balance of payments through market reforms, and all of these things are critical to the growth and development of a nation.