Yehui Tong

School of Accounting, Nanjing University of Finance and Economics, 

China

tongyyhh@163.com 

ORCID 0000-0002-7805-9470

Predictions of failure and financial distress: A study on Portuguese high and medium-high technology small and mid-sized enterprises

Zélia Serrasqueiro

Faculty of Human and Social Sciences, University of Beira Interior,

Portugal

zelia@ubi.pt 

ORCID 0000-0003-1761-5426

Abstract. The main purpose of this paper is to find the differences in the impacts of financial factors on business failure and financial distress. Using the traditional logistic regression method, this paper studies the ability of financial indicators to predict business failure and financial distress of small and mid-sized enterprises in Portuguese high and medium-high technology manufacturing sectors. The research results show that: (1) differences between financially healthy firms and failed firms are more obvious than differences between financially healthy firms and financially distressed firms; (2) the accurate rate of failure prediction decreases with time prolonging (from one year to three years prior to the event), whereas that of financial distress prediction maintains stable at a relatively lower level; (3) profitability is the most important indicator, which is negatively related to the probability of both business failure and financial distress; (4) debt-related and liquidity-related factors (especially indebtedness and general liquidity) are also important in predicting business failure and financial distress. This paper enriches the research literature on the predictions of both business failure and financial distress.

Received: January, 2020

1st Revision: February, 2021

Accepted: May, 2021

DOI: 10.14254/2071-8330.2021/14-2/1

JEL Classification: M10, M40

Keywords: financial factors, business failure, financial distress, high and medium-high technology, small and mid-sized enterprises