The Relevance of Qualitative Variables in Insolvency : The Case of Spanish Small and Medium Entities

The objective of this study is to analyze the factors that influence the insolvency of small and medium entities. In order to do this, a sample of Small and Medium Entities were gathered and analysed. The main conclusions of this paper allows us to state that in line with previous research, financial ratios are the most significant variables in the models and particularly those which represent resource generation and self-financing. Also, the qualitative information is also meaningful in order to evaluate the solvency of firms and adds accuracy to the models only based on ratios. Specifically, the number of shareholders and managers and the familiar relation in the board seem to be meaningful variables in order to identify the risk of insolvency. The main contribution of this paper consists of considering these factors for very small entities and to shed light about which qualitative traits may be relevant in insolvency detection