Bankruptcy prediction: an analysis of prediction models for Portuguese SMEs

For the benefit of its clients, nBanks invests in an important source of knowledge and innovation: academic research. As part of its partnership with the University of Minho, we interviewed Mara Almeida, author of a master's thesis that defines a predictive model to help Portuguese companies at risk of default or bankruptcy.

nBanks - Tell us a little about yourself and your background.

Mara Almeida - My name is Mara Almeida, I am 23 years old and I am Cape Verdean. I lived in Cape Verde until I was 18, when I finished 12th grade and headed to Portugal to continue my studies. I entered the University of Minho, where I graduated in Economics and, currently, I am pursuing a master's degree in Finance at the same University. It has been a long journey full of learning.

nBanks - What motivated you to collaborate with nBanks?

M.A. - When I started my master's degree in Finance, I wasn't sure what topic I would like to develop for my thesis and I hoped that, throughout the first year, it would become clearer. During this period, I had the opportunity to develop a thesis proposal for a course called Research Methods, which aimed to offer preparation for the second year of the master's degree and in which I addressed the topic of corporate bankruptcy. By researching this topic, I began to gain interest in it. When it came to choosing thesis topics and projects, the Finance master's board presented some reference topics, among which were projects that some companies expressed interest in developing in partnership with students. I was very happy when I saw that there was a company, nBanks, that wanted to develop a project precisely on the topic I was interested and motivated in and for which I had already done some work, even if briefly. In addition, I had already attended an nBanks presentation and I really liked the concept and the work they do.

nBanks - What thesis will you develop and what methodology will you use?

M.A. - In my thesis, I intend to analyze the applicability of bankruptcy prediction models for the Portuguese business fabric. There are already several models developed in the scope of bankruptcy prediction, using companies from other countries as a sample, as is the case, for example, in the United States of America. In this sense, based on existing literature, I will identify models that may be more relevant to my study and, through the application of these models to a set of previously selected SMEs, I hope to conclude on the predictive capacity of these models for the Portuguese context.

nBanks - What applicability do you think your thesis will have in the future? What benefits do you identify for companies and their managers?

M.A. - Bankruptcy prediction models can be extremely important, as they provide important information to managers, investors, banks, etc. These models provide information about the factors that underlie corporate bankruptcy and, with knowledge of these factors, investors are able to better control the risk to which they are exposed when investing, avoiding investing in companies that may be in bankruptcy situations. In the case of companies, it will also be important, because with these models they can previously detect risk situations or eventual bankruptcy and thus be able to develop timely measures or even prevent this situation.

nBanks - What final comment would you like to leave?

M.A - I would like to thank nBanks for the opportunity and for the immense support and availability. It is a huge pride to be part of and to be able to contribute to this highly applicable nBanks project. It has been and will undoubtedly continue to be an enriching experience.

The conclusions of this and the remaining 3 master's theses developed within the scope of the partnership established with the School of Economics and Management of the University of Minho will result in the creation of yet another functionality of the nBanks platform, to add to the range of tools available to support and streamline corporate financial management.

Knowledge is thus a key dimension for nBanks, both in its mission to offer clients relevant and systematized financial information through functionalities that streamline daily processes, and in pursuing its vision to establish itself as a reference agent in strengthening the impartiality and transparency of the financial market, for the benefit of clients' freedom of choice.

To this end, nBanks strongly and constantly invests in innovation, as a way to increase its know-how and thus provide its clients with differentiating services that permanently respond to the evolution of their needs.

Next week we will interview another student to present her master's thesis in conjunction with nBanks.

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