Determining financial variables in the business failure to small and medium enterprises in Colombia: analysis on Logit model

Abstract

The principal objective of this article is to identify the financial variablesthat better explain the situation of business failure from the perspectiveof predictive Logit models in the small and medium enterprisesin Colombia. Also, to verify the usefulness of the financial informationprovided by the type of companies that are analyzed. To achieve thisend, accounting records were taken of all companies that are requiredto report to the Colombian Superintendent of Companies for the years2005 to 2011. From these 40 financial ratios, five structural (independentvariables) were calculated and categorical variables as its age, sectorand size for different applied Logit models were added.