Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector Evidence
Autor(a) principal: | |
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Data de Publicação: | 2022 |
Outros Autores: | , |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10400.8/9024 |
Resumo: | This work analyses whether financial information quality is relevant to explaining firms’ probability of default. A financial default prediction model for SMEs (Small and Medium Enterprises) is presented, which includes not only traditional measures but also financial reporting quality (FRQ) measures. FRQ influences the decision-making due to its impact on financial information, which has repercussions on the accounting ratios’ informativeness. A panel data of 1560 Portuguese SMEs in the construction sector, from 2012 to 2018, is analysed. First, firms are classified as default or compliant using an ex-ante criterion which allows us to identify signs of financial constraints in advance. Then, the stepwise method is employed to identify which variables are more relevant to explain the default probability. Results show that FRQ measures, namely accruals quality and timeliness, impact firms’ defaulting, supporting their relevance in predicting financial difficulties. Finally, using a logit approach, the accuracy of the model increased when FRQ variables were included. Results are confirmed using “new age” classifiers, namely the random forest methodology. This work is not only relevant to the extant financial distress literature but has also relevant implications for practice since stakeholders can understand the impact of financial reporting quality to prevent additional risks. |
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Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector EvidenceFinancial report qualityDefaultFinancial distressLogitRandom forestSMEConstruction sectorThis work analyses whether financial information quality is relevant to explaining firms’ probability of default. A financial default prediction model for SMEs (Small and Medium Enterprises) is presented, which includes not only traditional measures but also financial reporting quality (FRQ) measures. FRQ influences the decision-making due to its impact on financial information, which has repercussions on the accounting ratios’ informativeness. A panel data of 1560 Portuguese SMEs in the construction sector, from 2012 to 2018, is analysed. First, firms are classified as default or compliant using an ex-ante criterion which allows us to identify signs of financial constraints in advance. Then, the stepwise method is employed to identify which variables are more relevant to explain the default probability. Results show that FRQ measures, namely accruals quality and timeliness, impact firms’ defaulting, supporting their relevance in predicting financial difficulties. Finally, using a logit approach, the accuracy of the model increased when FRQ variables were included. Results are confirmed using “new age” classifiers, namely the random forest methodology. This work is not only relevant to the extant financial distress literature but has also relevant implications for practice since stakeholders can understand the impact of financial reporting quality to prevent additional risks.MDPIIC-OnlineCosta, MagaliLisboa, InêsGameiro, Ana2023-12-08T18:04:11Z2022-062022-06-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.8/9024engCosta, Magali, Inês Lisboa, and Ana Gameiro. 2022. Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector Evidence. Risks 10: 98. https:// doi.org/10.3390/risks10050098https:// doi.org/10.3390/risks100500982227-9091info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2024-01-17T15:58:43Zoai:iconline.ipleiria.pt:10400.8/9024Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-20T01:51:36.641127Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector Evidence |
title |
Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector Evidence |
spellingShingle |
Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector Evidence Costa, Magali Financial report quality Default Financial distress Logit Random forest SME Construction sector |
title_short |
Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector Evidence |
title_full |
Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector Evidence |
title_fullStr |
Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector Evidence |
title_full_unstemmed |
Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector Evidence |
title_sort |
Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector Evidence |
author |
Costa, Magali |
author_facet |
Costa, Magali Lisboa, Inês Gameiro, Ana |
author_role |
author |
author2 |
Lisboa, Inês Gameiro, Ana |
author2_role |
author author |
dc.contributor.none.fl_str_mv |
IC-Online |
dc.contributor.author.fl_str_mv |
Costa, Magali Lisboa, Inês Gameiro, Ana |
dc.subject.por.fl_str_mv |
Financial report quality Default Financial distress Logit Random forest SME Construction sector |
topic |
Financial report quality Default Financial distress Logit Random forest SME Construction sector |
description |
This work analyses whether financial information quality is relevant to explaining firms’ probability of default. A financial default prediction model for SMEs (Small and Medium Enterprises) is presented, which includes not only traditional measures but also financial reporting quality (FRQ) measures. FRQ influences the decision-making due to its impact on financial information, which has repercussions on the accounting ratios’ informativeness. A panel data of 1560 Portuguese SMEs in the construction sector, from 2012 to 2018, is analysed. First, firms are classified as default or compliant using an ex-ante criterion which allows us to identify signs of financial constraints in advance. Then, the stepwise method is employed to identify which variables are more relevant to explain the default probability. Results show that FRQ measures, namely accruals quality and timeliness, impact firms’ defaulting, supporting their relevance in predicting financial difficulties. Finally, using a logit approach, the accuracy of the model increased when FRQ variables were included. Results are confirmed using “new age” classifiers, namely the random forest methodology. This work is not only relevant to the extant financial distress literature but has also relevant implications for practice since stakeholders can understand the impact of financial reporting quality to prevent additional risks. |
publishDate |
2022 |
dc.date.none.fl_str_mv |
2022-06 2022-06-01T00:00:00Z 2023-12-08T18:04:11Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10400.8/9024 |
url |
http://hdl.handle.net/10400.8/9024 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
Costa, Magali, Inês Lisboa, and Ana Gameiro. 2022. Is the Financial Report Quality Important in the Default Prediction? SME Portuguese Construction Sector Evidence. Risks 10: 98. https:// doi.org/10.3390/risks10050098 https:// doi.org/10.3390/risks10050098 2227-9091 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
MDPI |
publisher.none.fl_str_mv |
MDPI |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
instname_str |
Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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RCAAP |
institution |
RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
collection |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
repository.name.fl_str_mv |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
repository.mail.fl_str_mv |
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1799137007404843008 |