SMEs Failure Prediction: Literature Review

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

An empirical analysis of financially distressed Australian companies: the application of survival analysis

This thesis provides an empirical analysis of financially distressed companies in the Australian context using survival analysis techniques. Three main assays are developed and presented in the thesis. The first assay explores the effect of financial ratios and other variables on corporate financial distress and identifies the probability of corporate survival in a given time frame. The four main categories of financial ratios are profitability, liquidity, leverage and activity ratios and control variables which are a market-based variable and company-specific variables; for example, company age, company size and squared size are employed in the analysis. The Cox proportional hazards model was estimated using time-varying variables based on a sample of 1,117 publicly listed Australian companies over the period 1989 to 2005. Empirical results found that financially distressed companies have higher leverage measured by debt ratio, lower past excess returns and larger size compared to active companies. Researchers argue that a company may exit the market in several different ways, such as through merger, acquisition, voluntary liquidation and bankruptcy and each type of exit is likely to be affected by different factors. Consequently, the second assay investigates the determinants of multiple states of financial distress by applying a competing risks Cox proportional hazards model. The unordered three-state financial distress model is defined as follows: state 0: active companies, state 1: distressed external administration companies and state 2: distressed takeover, merger or acquisition companies. The effect of financial ratios, market-based variable and company-specific variables including company age, company size and squared size on three different states of corporate financial distress are investigated based on a sample of 1,081 publicly listed Australian companies over the period 1989 to 2005. The results indicate that it is important to distinguish between the different financial distress states. Additionally, the results suggest that distressed external administration companies have higher leverage, lower past excess returns and a larger size while distressed takeover, merger or acquisition companies have lower leverage, higher capital utilization efficiency and a bigger size compared to active companies. In addition to examining financial ratios as the main variables, this thesis further explores the effect of corporate governance attributes on IPO companies’ survival focusing on a particular sector. Accordingly, the third assay examines the influence of corporate governance mechanisms on the survival of 127 new economy IPO companies listed on the ASX between 1994 and 2002. In addition to the three main categories of corporate governance attributes include board size, board independence and ownership concentration; control variables, for example, offering characteristics, financial ratios and company-specific variables, are also included in the model. The Cox proportional hazards model estimation results found ownership concentration significantly negative related to the survival of new economy IPO companies. For offering characteristics variables, the offering size and the underwriter backing are a significant variable in explaining IPO companies’ survival; however, the estimated signs are in contrast to the expectations. Specifically, those IPO companies with a larger offering size are less likely to survive than are those that offer a smaller size. Furthermore, the results found that the hazard of financial distress for companies with an offer that is underwritten is greater than the hazard for those for which the offer is not underwritten. For financial ratios, the results indicate that the debt ratio is statistically significant in explaining IPO firms’ survival. In particular, IPO companies with a low total debts to total assets ratio are less likely to fail

Board Structure, Ownership Structure, and Performance of Thai Listed Companies

The purpose of this paper is to investigate the effects of board and ownership structures on the performance of the companies listed on the Stock Exchange of Thailand (SET) during the period 2001-2014. A random effects panel regression analysis is employed to explore these relationships. The empirical evidence shows that the firm’s board independence is significantly related to corporate performance. Specifically, board independence has a negative and significant impact on the performance measure return on assets (ROA). The result supports the argument that outside directors will not necessarily act in shareholders’ interest since the Chief Executive Officers (CEOs) often dominate the director nomination process. Moreover, we did not find a significant relationship between other board and ownership structures and firm performance. The results from this study show how board and ownership structures influence listed firms\u27 performance in Thailand. Firms in Thailand are generally smaller than those in developed countries, so unquestioning compliance with different codes and principles from elsewhere is inappropriate for Thai firms. The codes and principles may have to be customised to fit specific, contextual needs in Thailand

When the going gets tough: board capital and survival of new economy IPO firms

This study investigates the influence of corporate governance attributes on the likelihood of survival for 127 new economy IPO companies that listed on the ASX between 1994 to 2002. We use survival analysis techniques utilizing the Cox proportional hazards model with three main categories of corporate governance attributes; a) board size, b) board independence and c) ownership concentration We find that the survival time is negatively related to the percentage holdings of the top 20 shareholders. Our results also suggest that new economy IPO companies with low leverage and small company size are more likely to survive. However, the results indicate that board size and board independence do not explain the survival likelihood of new economy IPO firms. Our results suggest that corporate governance mechanisms that are designed specifically to protect minority shareholders and other providers of external capital are of little value during periods of extreme financial duress

Factors Influencing Retail Investors’ Trading Behaviour in the Thai Stock Market

This paper investigates trading behaviour among Thai retail investors in 2016. Using detailed survey data from 491 investors, we examine the characteristics and behavioural patterns that lead to investor bias. Empirical results in the behavioural finance literature indicate that retail investors may not behave reasonably. Behavioural biases may influence investor decisions and affect financial markets. These studies, however, are limited to subsamples of the overall investor groups studied and mainly focus on developed markets. We find that biases are common among investors and that men are more overconfident than women. Moreover, we discover that investors with more experience in trading are less likely to hold their stocks for long periods of time. Further, investors aged 45 and younger hold more diversified portfolios. Another finding is that participants with an income of more than 50,000 Baht a month and/or who employ a number of brokers hold more diversified portfolios. This evidence is consistent with the findings that have been reported for Turkey, India, and Vietnam, indicating that demographic factors are useful for distinguishing between investors in terms of the level of overconfidence bias they exhibit. This result confirms that demographic factors play a role in differentiating and classifying retail investors and should motivate future researchers to consider these factors in their research

Asymmetric spillover and quantile linkage between the United States and ASEAN+6 stock returns under uncertainty

This study examines the spillover and connectedness network among the United States and the Association of Southeast Asian Nations (ASEAN)+6 stock market returns during times of uncertainty in the world economy, such as the COVID-19 pandemic and the conflict between Russia and Ukraine. The quantile vector autoregression (QVAR) method was used, and daily data was collected from January 2, 2017, to June 30, 2023. The evidence provides important conclusions. Firstly, the overall level of static and dynamic connectivity is higher and more intense at extreme conditions, both lower and upper quantiles. Furthermore, the structure of network connectivity demonstrates that, in various market conditions, markets have functioned as both net transmitters and shock receivers. Eventually, the top three nations in which return volatilities are actively transmitted to other stock market outcomes in all three quartiles are the United States, Korea, and Singapore. This study offers suggestions for investors, policymakers, stock market reforms, and macroeconomic transformations; for example, portfolio diversification techniques may not benefit investors

Board structure and survival of new economy IPO firms

Research Question/Issue: This study examines the relevance of currently accepted best practice recommendations regarding board structure on the survival likelihood of new economy initial public offering companies. We argue that industry context determines governance outcomes. Research Findings/Insights: We study 125 Australian new economy firms listed between 1994 and 2002. Each firm is tracked until the end of 2007 for monitoring their survival. We find that board independence is associated with an increase in the likelihood of corporate survival. We also find that the benefits of board independence increase at a decreasing rate. Theoretical/Academic Implications: The standard best practice recommendation of board independence stems from the monitoring role of directors and is based on agency theory. The results from our study suggest that the recommendation regarding board independence does not work well for new economy firms. While the agency theory based model implies a monotonic relation between board independence and performance, our research suggests that the relationship is nonlinear. This variation occurs because of increased monitoring costs faced by outsiders due to higher information asymmetry and complexity of new economy firms. Our empirical results suggest that inside directors play a complementary role to outsiders in mitigating firm failure. Practitioner/Policy Implications: Our research offers insights to policy makers who are interested in setting best practice standards regarding board structure. Our research suggests that firm/industry characteristics play a crucial role in determining the optimal board structure. In firms/industries where outsiders face significantly higher information processing costs, insiders can play a valuable complementary role to outsiders in enhancing the effectiveness of the board. Thus future hard or soft regulations related to board structure should consider industry context

Understanding IT professional innovative work behavior in the workplace: A sequential mixed-methods design

In response to the pandemic, business leaders are increasingly investing in technology to enhance work processes. However, there is a gap in understanding how innovative work behavior (IWB) can facilitate this digital transformation and improve Information Technology (IT) helpdesk services. This study, guided by social exchange theory, explores the dimensions of IWB for IT helpdesk support staff using a mixed method design. Through a sequential exploratory approach, combining qualitative literature review and in-depth interviews, coupled with a quantitative survey of 440 IT staff, this study validates and establishes the reliability of an IWB measurement scale. Our results reveal eight dimensions of IWB: opportunity exploration, idea sharing, idea generation, idea implementation, idea organization, idea learning, idea promotion, and idea realization. These dimensions constitute a valid and reliable scale that organizations can utilize for self-assessment and employee development, as well as for identifying policy-related barriers to innovative work behaviors within the company

Multiple states of financially distressed companies: Tests using a competing-risks model

This study examines the determinants of multiple states of financial distress by applying a competing-risks model. It investigates the effect of financial ratios, market-based variables and company-specific variables, including company age, size and squared size on three different states of corporate financial distress: active companies; distressed external administration companies; and distressed takeover, merger or acquisition companies. A sample of 1,081 publicly listed Australian non-financial companies over the period 1989 to 2005 using a competing-risks model is used to determine the possible differences in the factors of entering various states of financial distress. It is found that specifically, distressed external administration companies have a higher leverage, lower past excess returns and a larger size; while distressed takeover, merger or acquisition companies have a lower leverage, a higher capital utilisation efficiency and a larger size compared to active companies. Comparing the results from both the single-risk model and the competing-risks model reveals the need to distinguish between financial distress states