Wijesekara, G. D. T. H.Buddhika, H. J. R.2025-05-152025Wijesekara, G. D. T. H., & Buddhika, H. J. R. (2025). The Determinacies of the Cost of Financial Distress in Sri Lankan Insurance Industry. 13th Students’ Research Symposium 2023/2024. Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka.http://repository.kln.ac.lk/handle/123456789/29142Introduction: Financial distress is one of the most detrimental factors facing businesses in terms of profit, firm value, and sustainability. It arises when the company is unable to meet its debt obligations, leading to bankruptcy, liquidation, or asset seizure. Global economic uncertainty heightens these risks and necessitates that firms develop models to monitor, identify, and measure any potential threats to business performance. The cost of financial distress is one of the most effective tools used to find symptoms of deterioration, such as tenders for sales growth and stock returns, that could avert severe losses or even bankruptcy. FD is going to touch the minds of a wide variety of stakeholders such as shareholders, employees, customers, suppliers, financial institutions, and society at large. The effects are not only at the level of the firm, but they go beyond and have macroeconomic effects. It might increase the cost of doing business for such firms, compared to companies that are stable. Since these costs have both direct and indirect components, costs are direct to each company if they include legal fees associated with bankruptcy proceedings, such as attorney and administrator fees. Indirect costs are hidden and accrue from interruptions to operations, damage to reputation, and temporary liquidity problems. Such research indicates that costs can reduce firm values by attaching a magnitude of said cost, between 1 percent and 5.3 percent. Early identification and mitigation of financial distress remain essential for ensuring business continuity and minimizing losses. Methodology: This study collected data from 7 financial distress insurance companies for a sample period of Seven years, from 2016 to 2021. Selected Distress Insurance companies are MBSL life insurance, MBSL Genera, LIC insurance company, Amana Life, LOLC life, Sanasa General and Firfirst insurance company. Using quantitative approach, this study collected secondary data from the annual reports and insurance industry handbooks of the selected financial distress companies. Financial Distress Likelihood, Tangible Fixed Assets, Lóng term leverage and short-term leverage were used as the explanatory variables to reflect the cost of financial distress of the selected distress companies. A series of fixed-effects panel regression models was used in this study to analyze the data. Findings: The study results showed no significant impact between dependent and independent variables. Therefore, all the hypotheses were rejected. Conclusion: The findings of the study have practical implications for the strategic leaders of the insurance industry, as they shall consider the cost of financial distress and how impact on insurance industry when making decisions.Cost of Financial DistressFinancial distress likelihoodshort team leveragelong term leverageTangible fixed assetsArticle