Engineering Proceedings (Jul 2023)

Improving the Accuracy of Firm Failure Forecasting Using Non-Financial Variables: The Case of Croatian SME

  • Tamara Kuvek,
  • Ivica Pervan,
  • Maja Pervan

DOI
https://doi.org/10.3390/engproc2023039062
Journal volume & issue
Vol. 39, no. 1
p. 62

Abstract

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Empirical findings based on a bivariate logistic regression model with two SME categories (successful and failed) indicate that by adding non-financial indicators to the model based on financial variables, the accuracy of forecasting increases significantly. Namely, the total classification error decreases by an average of 26.99%, while the AUROC value increases by an average of 7.33%. In the additional model, with three firm categories (successful, sensitive, and failed), the findings reveal that one financial variable (self-financing) and three non-financial variables (orderly settlement of obligations, export, and age) significantly explain the occurrence of the early stage of SME failure.

Keywords