The application of insolveny prediction models to the SMEs

During the last 40 years the growing apperarance of quantitative models about insolvency prediction in the financial and accounting literature has awakaned a great interest among the specialists and researchers of this field. What in the beginning were a few models with a sole objective, has evolved into a source of constant research In this paper an insolvency prediction model is formulated through a combination of different quantitative variables extracted from the Annual Accounts of sample firms for the period 1994-1997. Using a stepwise procedure, those variables which proved to be the most relevant in providing information were selected and analysed. Secondly, we introduced qualitative variables in order to increase the success of the functions. The results were possitive because they added discriminant power. Particularly, number and turnover in the manager board and the existence of familiar relations improved the previous models and achieved higher percentages of success.Finally, we introduced macroeconomic and industry variables with the same objective. Nevertheless, they don t improve the accuracy of the models.