Title: Failure prediction in New Zealand SMEs: measuring signs of trouble

Authors: Karen Van Peursem, Mike Pratt

Addresses: Department of Accounting, University of Waikato, Hamilton, New Zealand. ' Department of Accounting, University of Waikato, Hamilton, New Zealand

Abstract: Access to three years of annual reports and bank credit managers| assessments for 63 small businesses in New Zealand provides a strong basis to evaluate and to predict whether small businesses are likely to fail. Indicators of company failure are important, even crucial, to those who provide finance to unlisted companies, and to those who rely on the services of small businesses as well as to the business owners themselves. To accomplish this company prediction analysis, an established failure prediction model was applied to 185 accounts. The model results were compared to the credit managers| assessments for each organisation on two separate occasion: to predict whether and why each had continued (or been dissolved) as predicted. To conclude, the usefulness of the original quantitative model to small- and medium-sized New Zealand enterprises is confirmed, and further specific supplementary information and analysis are shown to contribute to the quality of failure prediction for businesses such as these.

Keywords: failure prediction; indicators; small business; bankers; modelling; New Zealand; SMEs; company failure; business failure; annual reports; credit manager assessments; performance measurement; performance management.

DOI: 10.1504/IJBPM.2006.009040

International Journal of Business Performance Management, 2006 Vol.8 No.2/3, pp.259 - 269

Published online: 16 Feb 2006 *

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