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 variables

that better explain the situation of business failure from the perspective

of predictive Logit models in the small and medium enterprises

in Colombia. Also, to verify the usefulness of the financial information

provided by the type of companies that are analyzed. To achieve this

end, accounting records were taken of all companies that are required

to report to the Colombian Superintendent of Companies for the years

2005 to 2011. From these 40 financial ratios, five structural (independent

variables) were calculated and categorical variables as its age, sector

and size for different applied Logit models were added.