Does Size Matter in Predicting SMEs Failure?

International Journal of Finance and Economics (Forthcoming)

52 Pages Posted: 2 Aug 2015 Last revised: 26 Jun 2018

See all articles by Jairaj Gupta

Jairaj Gupta

University of York

Mariachiara Barzotto

University of Bath School of Management

Amir Khorasgani

Coventry University

Date Written: June 2018

Abstract

This study acknowledges the diversity between micro, small and medium-sized firms while predicting bankruptcy and financial distress of United States small and medium-sized enterprises. Empirical findings suggest that survival (failure) probability increases (decreases) with increasing firm size and firms in different size categories have varying determinants of bankruptcy, while factors affecting their financial distress are mostly invariant. Magnitude of significant covariates changes across the size categories of both bankrupt and financially distressed firms. Further, operating cash flow information does not add any marginal increment in prediction performance of multivariate hazard models above baseline models developed using information from income statements and balance sheets. This result holds for failure likelihood of SMEs as well as their respective size categories.

Keywords: bankruptcy, small and medium-sized enterprises, survival analysis, financial distress, operating cash flow

JEL Classification: G33

Suggested Citation

Gupta, Jairaj and Barzotto, Mariachiara and Khorasgani, Amir, Does Size Matter in Predicting SMEs Failure? (June 2018). International Journal of Finance and Economics (Forthcoming), Available at SSRN: https://ssrn.com/abstract=2638485 or http://dx.doi.org/10.2139/ssrn.2638485

Jairaj Gupta (Contact Author)

University of York ( email )

University of York Management School
Church Lane Building
York, North Yorkshire YO10 5ZF
United Kingdom

Mariachiara Barzotto

University of Bath School of Management ( email )

Claverton Down Rd
Combe Down
Bath, Somerset BA2 7AY
United Kingdom

Amir Khorasgani

Coventry University ( email )

Priory Street
Coventry, CV1 5FB
United Kingdom

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