Firm failure prediction for small and medium-sized enterprises and new ventures

Weiyu Wang () and Maria João Guedes ()
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Weiyu Wang: Universidade de Lisboa
Maria João Guedes: Universidade de Lisboa

Review of Managerial Science, 2025, vol. 19, issue 7, No 2, 1949-1982

Abstract: Abstract New ventures and small and medium-sized enterprises (SMEs) are the engines that drive the development of the economy, productivity, and business. However, they differ with respect to their natures, and that may affect their choices and success. This paper investigates the determinants of failure for SMEs and new ventures in Portugal by employing a logistic regression technique to develop the one-year prediction models individually over the period from 2010 to 2018. The results show that age and size always play significant roles in discriminating the failure risk of both types of firm, but the financial predictors selected in the final default prediction models for SMEs and new ventures vary. Moreover, based on financial, age, and size predictors, the SME model performs much better than that of the new venture in the classification accuracy reported. This indicates that separate treatment should be carried out while predicting the failure likelihood of SMEs and new ventures.

Keywords: SMEs; New ventures; Failure prediction; Logistic model; Financial distress (search for similar items in EconPapers)
JEL-codes: G32 G33 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11846-024-00742-4

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