ABSTRACT
This paper aims to develop a model for predicting corporate bankruptcy for SMEs in the Portuguese manufacturing industry where this question remains rather unaddressed. Using profitability, activity, liquidity, leverage, and solvency ratios, it was added the size and age variables, for a group of 208 firms, including 49 bankrupt firms and 159 active firms, during the years 2011 to 2015. The logit model allowed us to estimate a model with 82.3% of predictive capacity. The most important variables identified were profitability, solvency, and size. Estimations only with the data closest to the bankruptcy date improved predictive capacity. It is evidenced that financial and non-financial variables can predict bankruptcy probability. A possible future approach would be to analyze a larger sample. Also, a larger period could be considered, allowing to test either the effects of the 2007/8 crisis or the effects of the recent economic turmoil related to Covid-19. Important for both corporate managers and investors. Conclusions may be disclosed regarding the influence that economic turmoil certainly has on corporate defaults and bankruptcies allowing its extension to other countries. The contribution of this paper is to find the best specification for a bankruptcy prediction model applied to the Portuguese manufacturing industry SMEs. This paper also contributes to the existing literature by using non-financial variables and analyzing a sector still unexplored in Portugal, albeit its conclusions can be extended to other countries. © 2022, Universiti Malaysia Sarawak. All rights reserved.