Predicting Bankruptcy of Belgian SMEs: A Hybrid Approach Based on Factorial Analysi

Abstract

The aim of this paper is to verify the relevance of technical data analysis which seems to be useful for identifying predictors of bankruptcy of Belgian SMEs. To do so, a sample of 1,860 Belgian companies, including healthy and bankrupt firms, was used. The sample was constituted using Belfirst software (2015). A mixed method data analysis, coupling the Ward aggregation criterion, the method of mobile centres and principal component analysis, was performed on the variables commonly cited in the literature as predictive of corporate bankruptcies. The results of this study show that the use of these methods is not relevant in the context of bankruptcy prediction using this sample, but the results of the logistic regressions did not question the discriminatory power of the introduced active variables.

Analysis of Financial Ratios for Predicting Bankruptcy in SMEs Listed on PEFINDO25

“…That is because the ability to obtain a higher corporate profits will affect good financial conditions so that there will be no financial failure at the company. The results of this study are in line with research conducted by Cultrera et al (2017) concluded that there is a negative relationship between profitability and bankruptcy. This ratio measures the amount of profits or profits generated by the company, because the higher the profit earned by the company, the company will be more protected from the risk of bankruptcy.…”

“…Because the economic conditions in Indonesia are still uncertain, this results in a high risk of bankruptcy. Potential bankruptcy is a concern for various parties, because bankruptcy is an important matter in stakeholders such as customers, suppliers, investors, creditors, and company employees (Cultrera et al 2017).…”

“…This research will focus on the financial approach by analyzing and considering financial ratios that reflect the signs that arise from the true causes of bankruptcy. The financial approach can also find relevant financial ratios to the variables of the z-score model used in this study which are generally obtained from the company's financial statements, including profitability ratios, liquidity ratios, debt structures, solvency ratios and activity ratios to predict bankruptcy in certain time horizon (Cultrera et al 2017).…”

Assessment of Bankruptcy Risk of Large Companies: European Countries Evolution Analysis

“…The factor analysis is often used together with other methodologies, in order to improve bankruptcy prediction models (Cultrera et al 2017). Principal Component Analysis (PCA), the statistical procedure that uses an orthogonal transformation to convert a set of observations of possibly correlated variables into a set of values of linearly uncorrelated variables called principal components started to be used in analysis and prediction of bankruptcy risk.…”

“…There exist many indicators in financial analysis which allow to assess the risk of bankruptcy of a company (Armeanu et al 2012;Armeanu and Cioaca 2015;Cultrera et al 2017;Arroyave 2018;Prusak 2018).…”