Determinants of default prediction of the tourism sector: the case of Portuguese SMEs

This study intends to understand the determinants of default of tourism SMEs (Small and Medium Enterprises), i.e., which aspects impact the probability that the company will not comply with its financial obligations. For this purpose, a panel data composed from a sample of 3,945 Portuguese SMEs, over ten years, was analysed. An ex-ante criterion (based on a set of financial ratios) was used to classify firms in default or compliant. This criterion helps to detect financial problems early. Then, in addition to the firm’s specific characteristics, which are the most used determinants, governance variables and macroeconomic factors were analysed in the firm's default prediction logit model. Results prove that the three groups of determinants are relevant to explain firms’ financial difficulties probability. The proposed model presents a success rate (predictive ability to classify as compliant and default) of around 80%. Furthermore, as a test of the robustness of the results, the sample period was divided into two subperiods (2010 to 2014 and 2015 to 2019) with different investment rates in the sector, allowing the conclusion that what determines the default of SMEs in the Portuguese tourism sector depends on the period analysed.