Abstract
The purpose of this study is to examine the impact of both firm-specific and macroeconomic factors on the financial distress risk of the firms listed in the Borsa Istanbul Small and Medium Enterprises (SMEs) Industrial Index over the period from 2010 to 2019. Generalized Method of Moments (GMM) estimator is used to determine the potential impact of firm-specific and macroeconomic factors on financial distress risk. The dependent variable used in the study is financial distress risk measured by Springate S score. This study considers the independent variables by incorporating both firm-specific (current ratio, quick ratio, asset turnover, debt ratio, financial leverage, and return on assets) and macroeconomic factors (economic growth, exchange rate, and inflation rate) in the analysis of financial distress risk. The empirical results show that the current ratio, quick ratio, asset turnover, debt ratio, financial leverage, and return on assets have a statistically significant positive impact on financial distress risk. On the contrary, the findings document a negative association between percentage change in the consumer price index and financial distress risk. To the best of the author's knowledge, this is one of the several studies seeking to identify the determinants of financial distress risk for Turkish SMEs by considering both firm-specific ratios and macroeconomic indicators with panel data analysis (generalized method of moments). This study may be extendable to be used by SMEs and may provide a remarkable resource for them. Also, the obtained results equate numerous practical implications nominately for the executives of SMEs as mentioned in the conclusion part of the study.
Highlights
Firms sometimes fall into a difficult situation and face the danger of not being able to survive, especially due to the problems arising from managerial and financial reasons, the economic crises or political problems in the country in which they operate, and global crises in the world economy
Looking at the association between macroeconomic variables and financial distress, it is observed that several macroeconomic variables such as GDP, inflation, interest rates, and exchange rate have a statistically significant effect on financial distress, but some of them have a low level of effect and some are high [6, 17, 20,34]
Secondary data issued over the period from 2010 to 2019 and a ten-year panel data are acquired from the annual financial statements of the 31 firms listed in Borsa Istanbul (BIST) Small and Medium Enterprises (SMEs) Industrial Index (A total of 41 firms are included in BIST SME Industrial Index, but 10 firms are excluded from the analysis because their data could not be fully available in the 2010-2019 period)
Summary
Firms sometimes fall into a difficult situation and face the danger of not being able to survive, especially due to the problems arising from managerial and financial reasons, the economic crises or political problems in the country in which they operate, and global crises in the world economy. The fact is that they have to operate in an environment dominated by risk and uncertainty may face some difficulties. These problems may increase over time and cause firms to fail. Financial distress is a result that may happen to all firms, without distinction between small- and large-scale firms or developed country and developing country firms [8]. This situation may emerge differently according to the scale of the firms. SME-sized firms have to consider the changes in the macroeconomic environment as data and adjust their
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