This study aims to examine the linear and nonlinear effects of free cash flow on the financial distress of listed halal food and beverage companies in Malaysia.
The study utilized a sample of 35 listed halal food and beverage firms in Malaysia. Secondary data were extracted from the Bloomberg database covering 14 years (2008–2021). The primary regression model employed was the two-step system generalized method of moments estimator. Additionally, the probit regressions model was used for robustness checks.
The findings indicated that free cash flow significantly reduced the financial distress of listed halal food and beverage firms. Furthermore, the study established that maintaining free cash flow up to 5.75% of total revenue (sales) represented an optimal level. Beyond this threshold, accumulating more free cash flow exposes the firms to higher financial distress.
This study utilized a sample of 35 listed halal food and beverage firms in Malaysia and utilized data between 2008 and 2021.
The study offered valuable insights for stakeholders within the halal food and beverage industry, especially regulators, boards of directors and managers. These findings emphasize the proper handling and utilization of free cash flow to prevent financial distress among these firms.
This study established not only a linear but also a threshold point of the relationship between free cash flow and the financial distress of Shariá-compliant nonfinancial firms.
