Financial Flexibility and the Impact of the 2007/2008 Global Financial Crisis: Evidence from African Firms

The objective of this study is to test the financial flexibility of firms in the period before, during and after the 2007/2008 global financial crisis and to understand the impact of this crisis on the financially flexible firms as compared to their peer, less financially flexible firms.Financial flexibility is measured using the Altman Z-score index, using cash and cash equivalents ratio, the retained earnings ratio, the earnings before interest and tax ratio, the market to book value ratio, and the sales ratio.A firm was regarded as being financially flexible if its Altman Z-score is equal or above 2.675, and as less financially flexible otherwise.The sample period is from 2004-2004 divided into 3 phases, i.e. the pre-crisis period (2004)(2005)(2006), the crisis period (2007/2008), and the post-crisis period (2009)(2010)(2011)(2012)(2013).The results show that about 42 firms (48.83%) of all the sampled firms were financially flexible before the onset of the global financial crisis.However during the crisis, 11 firms equal 26.19% of flexible firms lost their flexibility status while five more (12%) became less financially flexible in the period following the crisis.These results, therefore, provides evidence that the global financial crisis had a negative impact on the financial flexibility of firms, causing financially flexible firms to decrease at an average of 38% from 42 in the pre-crisis period to 31 in the post-crisis period.The originality of the author's approach is to evaluate the financial flexibility of firms listed in the Sub-Sahara Africa by applying the Altman z-score measure.