Loss given default or default status: Which is better to determine farmers’ credit ratings?

Nana Chai, Baofeng Shi and Yiting Hua

Finance Research Letters, 2023, vol. 53, issue C

Abstract: This paper establishes a novel farmers’ credit rating model and explores the difference in credit rating based on loss given default (LGD) and default status, using unique loan data from the CFPA Microfinance Management Co., Ltd in China. The empirical results show that the discrimination ability of the farmers’ credit rating method with LGD as the dependent variable is better than that with default status as the dependent variable. Furthermore, the theoretical analysis and empirical verification of this paper provide valuable supplements to the existing literature and new risk measurement insights for the risk management technicians of financial institutions.

Keywords: Credit rating; Loss given default; Default status; Microfinance; Farmer; China (search for similar items in EconPapers)
JEL-codes: C51 D81 E51 G32 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:53:y:2023:i:c:s154461232300048x

DOI: 10.1016/j.frl.2023.103674

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