Question

Select all that apply

What are some examples of indirect financial distress costs?

Multiple select question.

Lost reputation


Lost sales


Lost dividends


Legal expenses

Answer 1

Indirect financial distress costs are often harder to quantify and can arise from a company's financial difficulties. Based on the options you provided, the following can be considered examples of indirect financial distress costs:

1. **Lost reputation** - A company's financial distress can negatively impact its reputation, leading to a loss of customer trust and loyalty.

2. **Lost sales** - Financial difficulties can result in decreased sales as customers may choose to avoid doing business with a distressed company.

3. **Legal expenses** - While legal expenses can be direct costs, they can also arise indirectly as a result of financial distress, such as legal battles with creditors or regulatory issues.

Therefore, the applicable options are:

- Lost reputation
- Lost sales
- Legal expenses

**Lost dividends** is generally considered a direct cost as it pertains to actual dividend payments not being made to shareholders as a consequence of financial distress.