Predicting the growth of high-growth SMEs: evidence from family business firms

Abstract

Purpose

The purpose of this paper is to arrive at high-growth firm (HGF) and predict the growth of rapid-growth firms using the set of balance-sheet ratios.

Design/methodology/approach

The source of data came from the AIDA database, a commercial database provided by Bureau van Dijk. A total of 45,000 family business small- and medium-scale enterprises of Italy were selected for the study. Liquidity ratio, solvency ratio, firm age, cash flow, and working capital are considered as predictors of the firm growth. Probit regression is used for predicting the growth of the firms.

Findings

The result of the study indicated that the most important financial indicators were the liquidity ratio, solvency ratio, firm age, cash flow, and working capital are most important predictors of firm growth. The ROC of the model is 70.78, which shows that the model is fair.

Originality/value

The present study considers an innovative approach that considers balance sheet issued the year prior to the observation of rapid growth as predictors of firm growth (similar to the credit-scoring models, i.e. the Z-score model, to measure the probability of default).

Citation

Megaravalli, A.V. and Sampagnaro, G. (2019), "Predicting the growth of high-growth SMEs: evidence from family business firms", Journal of Family Business Management, Vol. 9 No. 1, pp. 98-109. https://doi.org/10.1108/JFBM-09-2017-0029