Determinants of Default Probability for Audited and Unaudited SMEs under Stressed Conditions in Zimbabwe

Frank Ranganai Matenda () and Mabutho Sibanda
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Frank Ranganai Matenda: School of Accounting, Economics and Finance, University of KwaZulu-Natal, Durban 4000, South Africa
Mabutho Sibanda: School of Accounting, Economics and Finance, University of KwaZulu-Natal, Durban 4000, South Africa

Economies, 2022, vol. 10, issue 11, 1-28

Abstract: Using stepwise logistic regression models, the study aims to separately detect and explain the determinants of default probability for unaudited and audited small-to-medium enterprises (SMEs) under stressed conditions in Zimbabwe. For effectiveness purposes, we use two separate datasets for unaudited and audited SMEs from an anonymous Zimbabwean commercial bank. The results of the paper indicate that the determinants of default probability for unaudited and audited SMEs are not identical. These determinants include financial ratios, firm and loan characteristics, and macroeconomic variables. Furthermore, we discover that the classification rates of SME default prediction models are enhanced by fusing financial ratios and firm and loan features with macroeconomic factors. The study highlights the vital contribution of macroeconomic factors in the prediction of SME default probability. We recommend that financial institutions model separately the default probability for audited and unaudited SMEs. Further, it is recommended that financial institutions should combine financial ratios and firm and loan characteristics with macroeconomic variables when designing default probability models for SMEs in order to augment their classification rates.

Keywords: default probability; distressed financial and economic conditions; unaudited and audited SMEs; determinants; stepwise logistic regression (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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