Work

The effect of size on the failure probabilities of SMEs: An empirical study on the US market using discrete hazard model

Year: 2015

Type: article

Abstract: This paper investigates the extent to which the size affects the SME probabilities of bankruptcy. Using a dataset of (11,117) US non-financial firms, of which (465) filed for insolvency under chapters 7/11 between 1980 and 2013. We forecast the bankruptcy probabilities by developing four discrete-time duration-dependent hazard models for SMEs, Micro, Small, and Medium firms. A comparison of the default prediction models for medium firms and SMEs suggests that an almost identical set of explanatory variables affect the default probabilities leading us to believe that treating each of these groups separately has no material impact on the decision making process. However, comparisons between the micro and small firms with the SMEs firms strongly suggest that these categories need to be considered separately when modelling their credit risk.

Source: International Review of Financial Analysis

DOI: 10.1016/j.irfa.2015.11.009

Authors: Izidin El Kalak, Robert Hudson

Institution: University of Hull

Language: English

Topic: Financial Distress and Bankruptcy Prediction

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,770

Funder: University of Hull