ABSTRACT:- The goal of this study is investigating the effect of financial distress on firm performance. We examine the causal effect of financial distress on the firm performance for US public firms using the Inverse Probability Weighting (IPW). We extend the standard IPW model with Bayesian approach. We confirm the presence of a causal relationship between these variables by providing the posterior predictive distribution of the causal effect. After removing the spurious correlation caused by the confounders, we find weaker effect of financial distress likelihood on firm performance compared with the literature.

Keywords:- Financial Distress, Firm Performance, Causal Inference, Inverse Probability Weighting, Bayesian Inference