IDEAS home Printed from https://ideas.repec.org/a/spr/soinre/v129y2016i3d10.1007_s11205-015-1164-6.html
   My bibliography  Save this article

Financial Distress, Employees’ Welfare and Entrepreneurship Among SMEs

Author

Listed:
  • John Nkwoma Inekwe

    (Monash University)

Abstract

The study predicts ex-ante financial distress in small and medium-sized enterprises (SMEs) and examines its significance in entrepreneurial activity. Thus, the study provides the dynamic characterization of the link between financial distress, employment and the growth in the establishment of SMEs. The study further examines employees’ welfare and financial distress of SMEs. The results reveal that financial ratios and market variables are significant in predicting financial distress risks. In the wake of financial distress, the results reveal contractions in the growth of SMEs. In addition, financial distress in SMEs induces an adverse effect on the level of employment and a reduction in employees’ welfare.

Suggested Citation

  • John Nkwoma Inekwe, 2016. "Financial Distress, Employees’ Welfare and Entrepreneurship Among SMEs," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 129(3), pages 1135-1153, December.
  • Handle: RePEc:spr:soinre:v:129:y:2016:i:3:d:10.1007_s11205-015-1164-6
    DOI: 10.1007/s11205-015-1164-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11205-015-1164-6
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s11205-015-1164-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Michel Dietsch, 2004. "Should SME exposures be treated as retail or corporate exposures: a comparative analysis of probabilities of default and assets correlations in French and German SMEs," ULB Institutional Repository 2013/14164, ULB -- Universite Libre de Bruxelles.
    2. P. Kler & G. Leeves & S. Shankar, 2015. "Nothing to Fear but Fear Itself: Perceptions of Job Security in Australia After the Global Financial Crisis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 123(3), pages 753-769, September.
    3. John Y. Campbell & Jens Hilscher & Jan Szilagyi, 2008. "In Search of Distress Risk," Journal of Finance, American Finance Association, vol. 63(6), pages 2899-2939, December.
    4. Israel M. Kirzner, 1997. "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 60-85, March.
    5. Berger, Allen N. & Udell, Gregory F., 2006. "A more complete conceptual framework for SME finance," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2945-2966, November.
    6. Purnanandam, Amiyatosh, 2008. "Financial distress and corporate risk management: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 87(3), pages 706-739, March.
    7. Hernandez Tinoco, Mario & Wilson, Nick, 2013. "Financial distress and bankruptcy prediction among listed companies using accounting, market and macroeconomic variables," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 394-419.
    8. Gartner, William B. & Shane, Scott A., 1995. "Measuring entrepreneurship over time," Journal of Business Venturing, Elsevier, vol. 10(4), pages 283-301, July.
    9. Paul Asquith & Robert Gertner & David Scharfstein, 1994. "Anatomy of Financial Distress: An Examination of Junk-Bond Issuers," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 625-658.
    10. Bauer, Julian & Agarwal, Vineet, 2014. "Are hazard models superior to traditional bankruptcy prediction approaches? A comprehensive test," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 432-442.
    11. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    12. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    13. Edward I. Altman & Gabriele Sabato, 2007. "Modelling Credit Risk for SMEs: Evidence from the U.S. Market," Abacus, Accounting Foundation, University of Sydney, vol. 43(3), pages 332-357, September.
    14. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 109-131.
    15. Zmijewski, Me, 1984. "Methodological Issues Related To The Estimation Of Financial Distress Prediction Models," Journal of Accounting Research, Wiley Blackwell, vol. 22, pages 59-82.
    16. Wruck, Karen Hopper, 1990. "Financial distress, reorganization, and organizational efficiency," Journal of Financial Economics, Elsevier, vol. 27(2), pages 419-444, October.
    17. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-535, June.
    18. David Roodman, 2011. "Fitting fully observed recursive mixed-process models with cmp," Stata Journal, StataCorp LP, vol. 11(2), pages 159-206, June.
    19. Agarwal, Vineet & Taffler, Richard, 2008. "Comparing the performance of market-based and accounting-based bankruptcy prediction models," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1541-1551, August.
    20. Wilde, Joachim, 2000. "Identification of multiple equation probit models with endogenous dummy regressors," Economics Letters, Elsevier, vol. 69(3), pages 309-312, December.
    21. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    22. Cope, Jason, 2011. "Entrepreneurial learning from failure: An interpretative phenomenological analysis," Journal of Business Venturing, Elsevier, vol. 26(6), pages 604-623.
    23. Jens Grunert & Lars Norden, 2012. "Bargaining power and information in SME lending," Small Business Economics, Springer, vol. 39(2), pages 401-417, September.
    24. Sudheer Chava & Robert A. Jarrow, 2008. "Bankruptcy Prediction with Industry Effects," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 21, pages 517-549, World Scientific Publishing Co. Pte. Ltd..
    25. Altman, Edward I. & Haldeman, Robert G. & Narayanan, P., 1977. "ZETATM analysis A new model to identify bankruptcy risk of corporations," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 29-54, June.
    26. Ed Nosal, 1998. "Financial Distress and Underemployment," Review of Economic Studies, Oxford University Press, vol. 65(4), pages 817-845.
    27. Shumway, Tyler, 2001. "Forecasting Bankruptcy More Accurately: A Simple Hazard Model," The Journal of Business, University of Chicago Press, vol. 74(1), pages 101-124, January.
    28. Pindado, Julio & Rodrigues, Luis & de la Torre, Chabela, 2008. "Estimating financial distress likelihood," Journal of Business Research, Elsevier, vol. 61(9), pages 995-1003, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Inekwe, John Nkwoma & Jin, Yi & Valenzuela, Ma. Rebecca, 2018. "The effects of financial distress: Evidence from US GDP growth," Economic Modelling, Elsevier, vol. 72(C), pages 8-21.
    2. Chiara D’Angelo & Diletta Gazzaroli & Caterina Gozzoli, 2020. "Organisational Welfare in Italian SMEs: The Process of Valorising Human Resources," Sustainability, MDPI, Open Access Journal, vol. 12(22), pages 1-13, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Inekwe, John Nkwoma & Jin, Yi & Valenzuela, Ma. Rebecca, 2018. "The effects of financial distress: Evidence from US GDP growth," Economic Modelling, Elsevier, vol. 72(C), pages 8-21.
    2. Hernandez Tinoco, Mario & Wilson, Nick, 2013. "Financial distress and bankruptcy prediction among listed companies using accounting, market and macroeconomic variables," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 394-419.
    3. Duc Hong Vo & Binh Ninh Vo Pham & Chi Minh Ho & Michael McAleer, 2019. "Corporate Financial Distress of Industry Level Listings in Vietnam," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 12(4), pages 1-17, September.
    4. Vo, D.H. & Pham, B.V.-N. & Pham, T.V.-T. & McAleer, M.J., 2019. "Corporate Financial Distress of Industry Level Listings in an Emerging Market," Econometric Institute Research Papers EI2019-15, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    5. Evangelos C. Charalambakis & Ian Garrett, 2019. "On corporate financial distress prediction: What can we learn from private firms in a developing economy? Evidence from Greece," Review of Quantitative Finance and Accounting, Springer, vol. 52(2), pages 467-491, February.
    6. Cathcart, Lara & Dufour, Alfonso & Rossi, Ludovico & Varotto, Simone, 2020. "The differential impact of leverage on the default risk of small and large firms," Journal of Corporate Finance, Elsevier, vol. 60(C).
    7. Ahsan Habib & Mabel D' Costa & Hedy Jiaying Huang & Md. Borhan Uddin Bhuiyan & Li Sun, 2020. "Determinants and consequences of financial distress: review of the empirical literature," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(S1), pages 1023-1075, April.
    8. Elsayed, Mohamed & Elshandidy, Tamer, 2020. "Do narrative-related disclosures predict corporate failure? Evidence from UK non-financial publicly quoted firms," International Review of Financial Analysis, Elsevier, vol. 71(C).
    9. Mohammad Mahdi Mousavi & Jamal Ouenniche, 2018. "Multi-criteria ranking of corporate distress prediction models: empirical evaluation and methodological contributions," Annals of Operations Research, Springer, vol. 271(2), pages 853-886, December.
    10. Andrikopoulos, Panagiotis & Khorasgani, Amir, 2018. "Predicting unlisted SMEs' default: Incorporating market information on accounting-based models for improved accuracy," The British Accounting Review, Elsevier, vol. 50(5), pages 559-573.
    11. Gupta, Jairaj & Chaudhry, Sajid, 2019. "Mind the tail, or risk to fail," Journal of Business Research, Elsevier, vol. 99(C), pages 167-185.
    12. Marta Gómez-Puig & Simón Sosvilla-Rivero & Manish K. Singh, 2018. "“Incorporating creditors' seniority into contingent claim models:Application to peripheral euro area countries”," IREA Working Papers 201803, University of Barcelona, Research Institute of Applied Economics, revised Feb 2018.
    13. B Korcan Ak & Patricia M Dechow & Yuan Sun & Annika Yu Wang, 2013. "The use of financial ratio models to help investors predict and interpret significant corporate events," Australian Journal of Management, Australian School of Business, vol. 38(3), pages 553-598, December.
    14. Pham Vo Ninh, Binh & Do Thanh, Trung & Vo Hong, Duc, 2018. "Financial distress and bankruptcy prediction: An appropriate model for listed firms in Vietnam," Economic Systems, Elsevier, vol. 42(4), pages 616-624.
    15. Filipe, Sara Ferreira & Grammatikos, Theoharry & Michala, Dimitra, 2016. "Forecasting distress in European SME portfolios," Journal of Banking & Finance, Elsevier, vol. 64(C), pages 112-135.
    16. Dimitris Mokas & Rob Nijskens, 2019. "Credit risk in commercial real estate bank loans: the role of idiosyncratic versus macro-economic factors," DNB Working Papers 653, Netherlands Central Bank, Research Department.
    17. Charitou, Andreas & Dionysiou, Dionysia & Lambertides, Neophytos & Trigeorgis, Lenos, 2013. "Alternative bankruptcy prediction models using option-pricing theory," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2329-2341.
    18. Abinzano, Isabel & Gonzalez-Urteaga, Ana & Muga, Luis & Sanchez, Santiago, 2020. "Performance of default-risk measures: the sample matters," Journal of Banking & Finance, Elsevier, vol. 120(C).
    19. Sumaira Ashraf & Elisabete G. S. Félix & Zélia Serrasqueiro, 2019. "Do Traditional Financial Distress Prediction Models Predict the Early Warning Signs of Financial Distress?," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 12(2), pages 1-17, April.
    20. Evangelos C. Charalambakis, 2015. "On the Prediction of Corporate Financial Distress in the Light of the Financial Crisis: Empirical Evidence from Greek Listed Firms," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 22(3), pages 407-428, November.

    More about this item

    Keywords

    Entrepreneur; Financial distress; Clogit; SMEs;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:soinre:v:129:y:2016:i:3:d:10.1007_s11205-015-1164-6. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.