Predicting Indian SME financial distress: an ex-ante approach
Purpose – The purpose of this study is to propose a financial distress prediction (FDP) model and method suitable for listed Indian small and medium enterprises (SMEs). Design/methodology/approach – A three-part screening criteria similar to Platt and Platt (2006) was tested independently and jointl...
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| Format: | Article |
| Language: | English |
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Emerald Publishing
2024-10-01
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| Series: | Vilakshan (XIMB Journal of Management) |
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| Online Access: | https://www.emerald.com/insight/content/doi/10.1108/XJM-02-2024-0034/full/pdf |
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| author | Sushma Rao A. Satya Nandini Minu Zachariah |
| author_facet | Sushma Rao A. Satya Nandini Minu Zachariah |
| author_sort | Sushma Rao |
| collection | DOAJ |
| description | Purpose – The purpose of this study is to propose a financial distress prediction (FDP) model and method suitable for listed Indian small and medium enterprises (SMEs). Design/methodology/approach – A three-part screening criteria similar to Platt and Platt (2006) was tested independently and jointly on Indian SMEs using statistically significant financial variables. Five stepwise multiple discriminant analysis (MDA) models were developed and the best-performing model was further compared against seminal models to check for robustness. Findings – Model C2 developed under Criterion C which stated “if net income before special items is negative in any given year the firm is considered as ‘unwell’” proved robust and effective. Originality/value – The proposed model identifies the importance of profitability and efficiency ratios over leverage ratios in determining financial distress and therefore, has implications for SME owners/managers and shareholders. |
| format | Article |
| id | doaj-art-013038578a7a49f58cd24a20bd3dfe77 |
| institution | Kabale University |
| issn | 0973-1954 2633-9439 |
| language | English |
| publishDate | 2024-10-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | Vilakshan (XIMB Journal of Management) |
| spelling | doaj-art-013038578a7a49f58cd24a20bd3dfe772024-12-20T13:02:28ZengEmerald PublishingVilakshan (XIMB Journal of Management)0973-19542633-94392024-10-0121228129210.1108/XJM-02-2024-0034Predicting Indian SME financial distress: an ex-ante approachSushma Rao0A. Satya Nandini1Minu Zachariah2Department of Management Studies and Research Centre, BMS College of Engineering, Bangalore, India and Visvesveraya Technological University, Belagavi, IndiaDepartment of Management Studies and Research Centre, BMS College of Engineering, Bangalore, India and Visvesveraya Technological University, Belagavi, IndiaDepartment of Management Studies and Research Centre, BMS College of Engineering, Bangalore, India and Visvesveraya Technological University, Belagavi, IndiaPurpose – The purpose of this study is to propose a financial distress prediction (FDP) model and method suitable for listed Indian small and medium enterprises (SMEs). Design/methodology/approach – A three-part screening criteria similar to Platt and Platt (2006) was tested independently and jointly on Indian SMEs using statistically significant financial variables. Five stepwise multiple discriminant analysis (MDA) models were developed and the best-performing model was further compared against seminal models to check for robustness. Findings – Model C2 developed under Criterion C which stated “if net income before special items is negative in any given year the firm is considered as ‘unwell’” proved robust and effective. Originality/value – The proposed model identifies the importance of profitability and efficiency ratios over leverage ratios in determining financial distress and therefore, has implications for SME owners/managers and shareholders.https://www.emerald.com/insight/content/doi/10.1108/XJM-02-2024-0034/full/pdfBankruptcyDeveloping countriesFinancial distressModelSmall and medium enterprises (SMEs) |
| spellingShingle | Sushma Rao A. Satya Nandini Minu Zachariah Predicting Indian SME financial distress: an ex-ante approach Vilakshan (XIMB Journal of Management) Bankruptcy Developing countries Financial distress Model Small and medium enterprises (SMEs) |
| title | Predicting Indian SME financial distress: an ex-ante approach |
| title_full | Predicting Indian SME financial distress: an ex-ante approach |
| title_fullStr | Predicting Indian SME financial distress: an ex-ante approach |
| title_full_unstemmed | Predicting Indian SME financial distress: an ex-ante approach |
| title_short | Predicting Indian SME financial distress: an ex-ante approach |
| title_sort | predicting indian sme financial distress an ex ante approach |
| topic | Bankruptcy Developing countries Financial distress Model Small and medium enterprises (SMEs) |
| url | https://www.emerald.com/insight/content/doi/10.1108/XJM-02-2024-0034/full/pdf |
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