'Creation and Destruction' in Transition Economies: SME Sector in Slovakia
Posted: 5 Oct 2014
Date Written: September 3, 2014
The privatisation of State Owned Enterprises (SEO) and cooperatives in Slovakia in the post-communist period created an SME sector diverse in origin and ownership. In the period 1993 to 2011 the size of the SME sector doubled. In this study we develop hypotheses from extant theories and analysis of the transition process to guide our examination of the survival probability of privately owned companies in Slovakia, up to and including the recent recessionary period. We build models within a failure prediction context. Along with the financial and non-financial variables common in failure prediction studies we develop "transition" variables that relate to the origin and ownership of the company. We employ a sample consisting of over 126,649 sets of accounts of 44,597 SME´s in Slovakia and identify 793 exits by failure during the period 1997-2012. We find that the supplement information relating to the transition process, in combination with the financial and non financial variables, make a significant contribution to the default prediction power of risk models built specifically for Slovakian SMEs. Of particular interest are variables that we construct relating to the ownership and origin of Slovakian enterprises. We find strong support for our hypothesis that some foreign ownership reduces failure probability along with support for our 'privatisation trap' hypothesis.
Keywords: Risk Modelling, Bankruptcy, Small Business failure, Transition Reform, Transition Recession.
JEL Classification: G33, G32, M13
Suggested Citation: Suggested Citation