Measurement Scale to Predict the Health of Small and Medium Size Enterprises

Abstract

Industria1 Sickness is a major impediment in the way of healthy growth of the industries in India, especially in the Small and Medium Enterprises (SME) sectors. In the absence of a diagnostic kit to forecast the health, stakeholders are somewhat helpless in taking any preventive action. Various quantitative models are available in literature, which include Univariate and Multiple discriminant analysis, Logit and Probit models, recursive partitioning algorithms and artificial neural networks. However, the success met by these models is limited. All these models depend only on secondary data like financial ratios which narrate what has already happened and can have only limited predictability. Subjective variables like quality of management, corporate governance, location of business etc. have also been contemplated. But due to lack of quantification their usage is limited. In this paper we have built a measurement scale for the managers. The scale will address the objectives, aspirations, style of functioning and core competence of the managers of the business. In the Indian financial context where lack of knowledge in maintaining financial accounts is a major issue among the SMEs, such a scale can be useful to predict bankruptcy.