Criterion used to identify company’s financial problems to classify companies in default or compliant.
Published in Chapter:
International Effect on Family SME Financial Distress Prediction
Ines Lisboa (CARME, School of Technology and Management, Polytechnic Institute of Leiria, Portugal) and Magali Costa (CEFAGE, School of Technology and Management, Polytechnic Institute of Leiria, Portugal)
Copyright: © 2021
|Pages: 18
DOI: 10.4018/978-1-7998-4387-0.ch009
Abstract
Understanding the reasons of default risk is crucial to avoid the firm's bankruptcy. The purpose of this work is to analyze the impact of internationalization on firm's probability of distress. For it, this chapter aims to propose a model to predict default specific to family SMEs (small and medium enterprises). An unbalanced panel of 10,832 firms over the period from 2012-2018 is analyzed. Ex-ante criteria to classify firms in default or compliant is used. International SMEs have lower probability of default than domestic firms, and compliant firms export more. Results show that export ratio is an important determinant of the probability of default. Moreover, the ratios of liquidity, profitability, size, leverage, efficiency, cash flow, and age are also relevant. Moreover, these ratios explain default risk of both groups international and domestic SMEs. The proposed model has an accuracy of 92.9%, which increases to 95.6% if only export SMEs are analyzed.