The Role of Financial Health in Predicting Long-Term Performance in Selected Industries in Thailand

Abstract

Aim/Purpose: In this study, the relationship between financial health and long-term performance was investigated across four key Thai industries, including Agribusiness, Automotive, Petrochemicals, and Tourism and Leisure. The research identified which sectors were financially strong or at risk and explored the impact of firm size and industry type on performance. This information is crucial for business leaders, investors, and policymakers when making decisions.

Introduction/Background: Thailand’s economy has faced a recent slowdown; the COVID-19 pandemic made things even tougher, especially for industries like Tourism and Leisure. Service and manufacturing firms are vital to national economic development, but both have struggled with profitability amidst global disruption. While much existing research has relied on short-term financial ratios to assess firm performance, a notable gap remains in emerging economies such as Thailand regarding the use of comprehensive financial health indicators. This study utilized the Altman Z-score, a robust measure of long-term financial stability, to predict long-term performance among Thai firms. Furthermore, it addressed the underexplored roles of firm size and industry type, contributing new insights into long-term financial sustainability in emerging markets.

Methodology: The quantitative study utilized the data from 57 companies listed on the Stock Exchange of Thailand (SET), which included 10 firms from the Agribusiness sector, 19 from Automotive, 14 from Petrochemicals, and 15 from Tourism and Leisure from the years 2021 to 2024.  To measure financial health, Altman’s Z-score was used to predict bankruptcy and assess an industry’s solvency risk. Long-term performance was evaluated through key financial metrics, which included Earnings per Share (EPS), Net Profit Margin (NPM), Return on Assets (ROA), and Return on Equity (ROE). Relationships between financial health and performance were examined using Pearson’s correlation coefficient and fixed-effects regression analysis, while controlling variables such as firm size, year, and industry-specific effects.

Findings: The findings revealed several important insights. Firstly, the Z-scores exhibited significant positive relationships with performance indicators such as EPS, NPM, ROA, and ROE. These results revealed that financially stable firms tended to perform better in the long run. Secondly, the firm size analysis showed that larger firms demonstrated stronger performance in EPS, ROA, and ROE, but firm size did not significantly affect NPM. This showed that profitability margins are more dependent on operational efficiency than scale alone. Thirdly, the industry analysis revealed that the Tourism and Leisure sector was hit hardest by the pandemic; it demonstrated a strong recovery with higher ROA and ROE once recovery began. However, almost all companies in this sector (96.67%) are still in financial trouble, which is a big concern. Agribusiness exhibited the lowest company risk, which demonstrated stable demand, efficient cost management, and effective performance in the industry. The Automotive and Petrochemical sectors showed moderate financial stability, with some firms facing liquidity challenges, but generally maintaining steady performance. In conclusion, the research findings highlighted the different degrees of financial resilience across industries, emphasizing the need for tailored risk management strategies.

Contribution/Impact on Society: This study makes several important key contributions because it shows how firms with good financial health can remain strong for a long time. It also provides industry-specific information about financial risks and how businesses recover. Thus helping business leaders, investors, and policymakers make smart decisions. The size of a company matters in terms of its performance, but this can change depending on how it is measured. Finally, the research findings can assist investors in finding strong companies in new markets.

Recommendations: Based on these findings, several recommendations are proposed for businesses, policymakers, and investors. For businesses, firms with high risk, such as those in Tourism and Leisure, should prioritize financial health by optimizing liquidity, reducing debt burdens, and improving operational efficiency. Policymakers should implement targeted support mechanisms such as liquidity assistance for Tourism & Leisure, and tax incentives for Agribusiness to encourage efficiency. Additionally, regulatory frameworks that promote financial transparency and robust risk management practices should be established, particularly in volatile industries. Investors should incorporate Z-scores and firm size as screening criteria when evaluating long-term investment opportunities in Thai investments. They should also diversify their portfolios to mitigate risk, for example, by balancing investments in sectors like Agribusiness and Automotive.

Research Limitations: This study was limited to publicly listed companies in four industries and excluded private enterprises, which may have shown different financial behaviors. Additionally, the use of only accounting-based performance measures (EPS, NPM, ROA, ROE) may not capture market-based dimensions of performance. Lastly, the study covered a period that was heavily influenced by the COVID-19 pandemic, which may have skewed the findings.

Future Research: Future research studies could include more industries, private firms, or firms from other ASEAN countries. Including additional control variables (such as leverage, innovation, investment, or corporate governance) may also enhance explanatory power and uncover deeper insights into the determinants of financial performance.