Credit risk assessment and the impact of the New Basel Capital Accord on small and medium‐sized enterprises

Ana Paula Gama and Helena Susana Amaral Geraldes

Management Research Review, 2012, vol. 35, issue 8, 727-749

Abstract: Purpose - The purpose of this paper is to develop a credit‐scoring model as an aggregate valuation procedure that integrates various financial and non‐financial factors and thereby improves small to medium‐sized enterprises' (SMEs) knowledge about their default risk. Design/methodology/approach - Using panel data from a representative sample of Portuguese SMEs operating in the food or beverage manufacturing sector, this paper develops a logit scoring model to estimate one‐year predictions of default. Findings - The probability of non‐default in the next year is an increasing function of profitability, liquidity, coverage, and activity and a decreasing function of leverage. Smaller firms and those with just one bank relationship have a higher probability of default. The findings suggest that a main bank has incentives to engage in hold up by increasing margins that ex post are too high. Practical implications - Because SMEs differ from large corporations in their credit risk (e.g., riskier, lower asset correlations), this study has implications for both banks and supervisory actors. Banks should consider qualitative variables when setting internal systems and procedures to manage credit risk. Supervisory institutions should claim mixed credit ratings to determine regulatory capital requirements. Originality/value - This paper offers a new model, focused specifically on SMEs, and explores the role of financial and non‐financial factors in determining internal credit risks.

Keywords: Default probability; Small to medium‐sized enterprises; Credit scoring models; Basel II; Logistic regression; Financial risk; Portugal (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:mrrpps:v:35:y:2012:i:8:p:727-749

DOI: 10.1108/01409171211247712

Access Statistics for this article

Management Research Review is currently edited by Dr Jay Janney and Prof Lerong He

More articles in Management Research Review from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().