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Diagnosing default syndromes: early symptoms of entrepreneurial venture insolvency

Michele Modina (Department of Economics, Universita degli Studi del Molise, Campobasso, Italy)
Stefano Zedda (Department of Economics and Business Sciences, University of Cagliari, Cagliari, Italy)

Journal of Small Business and Enterprise Development

ISSN: 1462-6004

Article publication date: 16 May 2022

Issue publication date: 27 February 2023




In this study, a panel of 74,128 Italian SMEs was analyzed to verify whether any syndromes could be identified and defined through financial ratios. Defining relevant syndromes (i.e. the set of correlated signs and symptoms often associated with a particular disorder) can be of importance for assessing which specific intervention can solve a firm's difficulties.


To identify the main syndromes involved in company defaults, firstly, financial data on defaulted firms for each of the main economic sectors were examined through a cluster analysis; the results obtained for each sector were then compared to verify whether syndromes recur across sectors. Finally, the effects of each syndrome were compared with possible default causes, as described by previous literature.


Results show that a significant share of corporate insolvencies is characterized by a set of recurrent signs and symptoms so that the main syndromes can be identified. The results also show that these syndromes recur across sectors, even if specific values characterize each sector.

Research limitations/implications

The approach adopted in this study sets a new direction for the analysis of default risk, as the study shows that certain key syndromes can be defined and described, and the study suggests that different problems can induce different risk patterns. Further analyses of other samples could confirm whether the same syndromes recur over countries and over time.


This is the first study aimed at identifying and describing the syndromes affecting SMEs, conducted by means of balance-sheet ratios.



Modina, M. and Zedda, S. (2023), "Diagnosing default syndromes: early symptoms of entrepreneurial venture insolvency", Journal of Small Business and Enterprise Development, Vol. 30 No. 1, pp. 186-209.



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