Predicting French SME Failures: New Evidence from Machine Learning Techniques

Christophe Schalck and Meryem Schalck

No 2021-009, Working Papers from Department of Research, Ipag Business School

Abstract: The aim of this study is to provide new insights into French small and medium-sized enterprises (SME) failure prediction using a unique database of French SMEs over the 2012?2018 period including both financial and nonfinancial variables. We also include text variables related to the type of activity. We compare the predictive performance of three estimation methods: a dynamic Probit model, logistic Lasso regression, and XGBoost algorithm. The results show that the XGBoost algorithm has the highest performance in predicting business failure from a broad dataset. We use SHAP values to interpret the results and identify the main factors of failure. Our analysis shows that both financial and nonfinancial variables are failure factors. Our results confirm the role of financial variables in predicting business failure, while self-employment is the factor that most strongly increases the probability of failure. The size of the SME is also a business failure factor. Our results show that a number of nonfinancial variables, such as localization and economic conditions, are drivers of SME failure. The results also show that certain activities are associated with a prediction of lower failure probability while some activities are associated with a prediction of higher failure.

Keywords: SME; failure prediction; Machine learning; XGBoost; SHAP values (search for similar items in EconPapers)
JEL-codes: C41 C46 G33 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2021-01-01
New Economics Papers: this item is included in nep-big, nep-cmp, nep-ent, nep-eur, nep-rmg and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://faculty-research.ipag.edu/wp-content/uploa ... IPAG_WP_2021_009.pdf (application/pdf)

Related works:
Journal Article: Predicting French SME failures: new evidence from machine learning techniques (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ipg:wpaper:2021-009

Access Statistics for this paper

More papers in Working Papers from Department of Research, Ipag Business School Contact information at EDIRC.
Bibliographic data for series maintained by Ingmar Schumacher ().