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

El Kalak, Izidin ORCID: https://orcid.org/0000-0002-2992-4042 and Hudson, Robert 2016. The effect of size on the failure probabilities of SMEs: An empirical study on the US market using discrete hazard model. International Review of Financial Analysis 43 , pp. 135-145. 10.1016/j.irfa.2015.11.009

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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.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Publisher:	Elsevier
ISSN:	1057-5219
Date of Acceptance:	20 November 2015
Last Modified:	23 Oct 2022 13:46
URI:	https://orca.cardiff.ac.uk/id/eprint/111699

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