Public vs Private SMEs: A comparison of distress hazard

Jairaj Gupta, Andros Gregoriou, Gbenga Ibikunle

Research output: Working paper

Abstract

This study considers listed and unlisted small and medium-sized enterprises (SMEs) of the United States separately while developing one-year financial distress prediction model for them. Empirical analysis of financial distress performed using discrete-time duration-dependent hazard rate modelling technique with logit link and a set of financial covariates reveal striking differences between distress hazard of listed and unlisted SMEs. Almost an identical set of covariates exhibit significant discriminatory power for both listed and unlisted SMEs, but there exist significant differences in their weights of regression coefficients in respective groups. Further, Average Marginal Effects of respective covariates for unlisted group of SMEs are strikingly higher than their listed counterparts, suggesting higher vulnerability of unlisted firms due to changes in financial ratios. Our findings support the view that stock exchange listing can relieve SMEs from external financing constraints, thus reducing their likelihood of financial distress.
Original languageEnglish
DOIs
Publication statusPublished - 24 Apr 2015

Keywords

  • Financial Distress
  • SMEs
  • Discrete Hazard Models
  • Liquidity, Credit Risk

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