Article ID Journal Published Year Pages File Type
5084646 International Review of Financial Analysis 2016 11 Pages PDF
Abstract

•We investigate how company size affects bankruptcy probability for US SMEs.•We investigate US firms, which filed for insolvency between 1980 and 2013.•We develop discrete-time duration-dependent hazard models to forecast insolvency.•We investigate SMEs, micro, small, and medium firms.•We find micro and small firms should be considered separately.

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.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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