Financial Distress in Consumer Cyclicals: How Liquidity and Operating Cash Flow Shape Resilience

Abstract

Financial distress remains a critical threat for companies across various industries, especially in times of economic uncertainty. This study explores how a firm’s liquidity and operating cash flow contribute to its potential exposure to financial distress, with firm size as a moderating factor. Using a logistic regression model, the study utilizes data from consumer cyclicals companies that were publicly listed on the Indonesia Stock Exchange from 2019 to 2023. The findings reveal that both liquidity and operating cash flow have a negative and significant effect on financial distress. Furthermore, firm size moderates the relationship between liquidity and financial distress by weakening its negative effect, implying that liquidity is less critical in mitigating financial distress for larger firms. However, firm size does not significantly moderate the effect of operating cash flow on financial distress. These findings suggest the importance of maintaining adequate liquidity and cash flow, particularly for smaller firms that have limited financial flexibility.