Financial Distress in Small and Medium-Sized Enterprises in Jamaica: A Note (Report‪)‬

Abstract Financial distress is a global phenomenon of paramount importance to small enterprises in small open economies such as those of the Caribbean. However, the debate on the causes of financial distress has not reached a consensus as the literature presents conflicting perspectives on the sources of this adversity. Attempting to resolve the dilemma, this study explores the association between financial distress, macroeconomic conditions and firm-specific factors at publicly listed small and medium-sized enterprises in Jamaica. The major finding of our study is that, for small enterprises operating with a non-tradable currency in a small open economy, financial distress arises from a combination of firm-specific and macroeconomic factors. The implications from this study are (1) managers should exploit operating efficiency in place of debt as a primary source of finance (2) managers should take deliberate actions to avert the adverse effects of currency devaluation and interest rate volatility, and (3) national policymakers should adopt profitability as a key criterion for selecting strategic industries.