SMEs Failure Prediction: Literature Review

Abstract

The main purpose of this paper is to review the literature on the empirical methodologies utilized in bankruptcy prediction and the potential predictors of organization failure by emphasis in Small and medium enterprises (SMEs). In developing countries, small-scale businesses are the most important source of new employment opportunities. Governments throughout the world attempt to promote economic progress by focusing on small-scale enterprises. Despite the fact that SMEs play an increasingly important role in providing new products and employment opportunities, SMEs in Thailand have encountered many difficulties, especially financing. SMEs frequently lack access to institutional credit, causing them to encounter high financing costs and facing failure. The economic, financial, and social losses resulting from these failures are significant. Thus, it is valuable to try to develop methods to predict such failures. However, there are only very few studies dealing with failure prediction methods for SMEs compared to those that focus on listed companies context. The studies examined SMEs failure or survival such as Keasey and Watson (1987), Laitinen (1992), Wagner (1994), Huyghebaert and Gaeremynck (2000), Watson (2003), Bilderbeek and Pompe (2005), April (2005), Altman and Sabato (2007) and Fantazzini and Figini (2009b). It is important to note that the studies mentioned earlier were not conducted for the case of Thailand.