An analysis of non-financial factors associated with financial distress

This article examines factors associated with financial distress among 1006 Spanish manufacturings (SMEs), distinguishing high and low technology industries. Financial distress is analysed using industrial organizational theory through the Porter's five competitive forces model (external factor...

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Bibliographic Details
Published in:Entrepreneurship and regional development 2011-04, Vol.23 (3-4), p.159-186
Main Authors: Madrid-Guijarro, Antonia, García-Pérez-de-Lema, Domingo, van Auken, Howard
Format: Article
Language:English
Subjects:
Competition
Discriminant analysis
Financial analysis
financial distress
Financial management
Financial performance
High tech industries
international
Manufacturers
Manufacturing
Organization theory
Small & medium sized enterprises-SME
Small and medium sized enterprises
Spain
Strategic planning
Studies
Technology
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Summary:This article examines factors associated with financial distress among 1006 Spanish manufacturings (SMEs), distinguishing high and low technology industries. Financial distress is analysed using industrial organizational theory through the Porter's five competitive forces model (external factors) and the resource based view through strategic variables (internal factors), such as training, planning, innovation, technology and quality. Two different sources of information were used in the study: Qualitative information related to environmental conditions and strategic variables was gathered through a questionnaire addressed to the firm manager. Quantitative information to identify whether the firm was in financial distress was gathered from the balance sheets and earning statements of the firms. Evidence from this study shows that environmental conditions and some strategic variables are associated with financial distress. The results found that young SMEs with low technology and in a highly competitive environment had a higher probability of financial distress. High bargaining power of buyers and high degree of rivalry among existing competitors were positively associated with financial distress. Financial distress in high-technology industries was not affected by external factors. However, firms with a quality certification have better quality control procedures that ultimately improve financial performance of firms in the technology industries.
ISSN:0898-5626
1464-5114
DOI:10.1080/08985620903233911