Assess the Rating of SMEs by using Classification And Regression Trees (CART) with Qualitative Variables

Francesco Campanella ()
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Francesco Campanella: Department of Economics, Second University of Naples Corso Gran Priorato di Malta, 1, Capua, Caserta, 81043, ITALY, http://www.economia.unina2.it/suneco/site/it/docenti/details?username=francamp

Review of Economics & Finance, 2014, vol. 4, 16-32

Abstract: Italian banks have never used the credit rating system to grant funds to SMEs until the introduction of Basel II accord. Credit Rating Systems use financial ratios that are often not adapted to SMEs' assessment. In fact, small and medium-size enterprises are characterized by a high level of intangible assets. Some researchers focus their attention on the evaluation of qualitative variables of SMEs (management; corporate governance; SMEs-territory relationship), but no research is able to integrate these SMEs¡¯ qualitative variables into a single scoring model, or to sufficiently consider the characteristics of SMEs-financial markets relationship. This paper proposes a specific credit scoring model to SMEs' assessment which includes all these variables combining two methods: Altman¡¯s ¡®EM-Score¡¯ and CART (Classification and Regression Tree). This model is performed on a sample of 6,534 Italian manufacturing firms getting a high level of reliability.

Keywords: Credit scoring model; Hierarchies of qualitative variables; Classification and Regression Trees; Rating; Relationship between SMEs and financial markets (search for similar items in EconPapers)
JEL-codes: G01 G21 G24 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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