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

Izidin El Kalak and Robert Hudson

International Review of Financial Analysis, 2016, vol. 43, issue C, 135-145

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.

Keywords: SMEs; Bankruptcy; Size; Discrete-time duration-dependent hazard model (search for similar items in EconPapers)
JEL-codes: G20 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:43:y:2016:i:c:p:135-145

DOI: 10.1016/j.irfa.2015.11.009

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