Abstract

The Influence of Financial Factors and Their Stability on The Predictions of Failure and Financial Distress: The Evidence from Portuguese Small and Medium-Sized Enterprises in High and Medium-High Technology Manufacturing Sectors

Author(s): Yehui Tong, Zelia Serrasqueiro

Using the traditional logistic regression model, this paper studies the impacts of some financial variables and the relative variance variables on the prediction of failure and financial distress of Portuguese small and medium-sized enterprises in high and medium-high technology manufacturing sectors. The results show that adding variance variables (standard deviations as the representative of variable stability) to the original variables does increase the classification accuracy of the models. As for the detailed impacts of financial factors, profitability as a positive factor is the most important indicator for both failure and financial distress, which is followed by debt structure and liquidity; on the other hand, different to leverage and firm size, intangible assets are more important in the distress prediction model compared to the failure prediction model. The differences of the statistically significant variables in the failure prediction model and the financial distress prediction model verify that it is necessary to separate failure from financial distress when doing predictions.

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