The Hazard Model for European SMEs: Combining Accounting and Macroeconomic Variables
Michal Karas
Keywords:
SMEs, corporate default, Cox model, hazard model, competitiveness, baseline hazard rate
Abstract:
Predicting the default of small and medium-sized businesses (SMEs) using the hazard model
approach represents an area relatively neglected by mainstream literature. On the one hand,
SMEs are regarded as the backbone of the economy; on the other hand, their specific features
pose a challenge to the modelling process. This issue is further complicated by the fact that many
modern structural approaches to default modelling are simply unsuitable for SMEs due to their
limited size. Therefore, researchers only rely on accounting, non-financial, or macroeconomic
data. The gap is especially noticeable in several studies on SME default prediction that employ
the hazard model approach, which models the probability of default with respect to the time
factor. A better understanding of the factors driving SMEs’ default might help in adopting
policies that strengthen their competitiveness. The aim of this study is to introduce a hazard
model for EU-28 SMEs and analyse the contribution of macroeconomic indicators and proxies
of external financial obstacle factors. This model was derived using the Cox semiparametric
proportional model, leaving the baseline hazard unspecified and employing macroeconomic
variables as explanatory variables. By analysing a sample of 202,209 European SMEs over
the period 2014–2019, the results indicated that factors of employment rate, personal cost per
employee, and interest rate play significant roles in determining the survival of SMEs. Adding
these macroeconomic variables significantly increased the area under curve values compared to
the situation where only accounting variables were used.
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 The Hazard Model for European SMEs: Combining Accounting and Macroeconomic Variables [PDF file] [Filesize: 526.25 KB]
 10.7441/joc.2022.03.05
Karas, M. (2022). The Hazard Model for European SMEs: Combining Accounting and Macroeconomic
Variables. Journal of Competitiveness, 14(3), 76–92. https://doi.org/10.7441/joc.2022.03.05
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