Modeling Financial Distress of SMEs in Thailand for Comparative Analysis of Normal and Recession Periods

Abstract

Small and medium-sized enterprises (SMEs) are often viewed as backbone of countries’ economy since they play a crucial role in countries’ employment and growth. Credit risk analysis for SMEs has become an important task to perform since the lack of understanding and developing an effective tool to forecast the distress and default risk may lead to huge losses and affect the whole economy of a country. Therefore, this paper aims to develop the models that can predict for the probability of financial distress for SMEs in Thailand by employing both Logistic Regression Analysis (Logit) and Cox’s Proportional Hazard model. Moreover, the objective of this study is to examine the impact of recession period on the probability of SMEs financial distress. Also, to investigate the impact of recession period on each industry. The result indicates that recession period has a significant positive impact on the probability of Thai SMEs distress as firms tend to face with higher risk of distress during recession period. However, there was no strong statistical evidence supporting the differences in the impact of recessionary period on Accommodation and Food, Manufacturing, Electricity, Gas, and Water Supply, and other industries.