Journal of
Italian
Banking
Association

year 100
 

Forum | Papers » Building Sme rating: is it necessary for lenders to monitor financial statements of the borrowers?

Building Sme rating: is it necessary for lenders to monitor financial statements of the borrowers?

Edward I. Altman, Alessandro Giannozzi, Oliviero Roggi, Gabriele Sabato
October 2013
Jel codes: G21, G33

The goal of this paper is to analyze the role that non-financial variables can play in assessing Smes creditworthiness and to compare their value in predicting business failure with the one of the most commonly used financial ratios. We investigate the importance for banks in modeling credit risk for Smes using non-financial variables able to describe the relationship company-banks. Our findings demonstrate that credit relationship information is better predictor of corporate failure than financial ratios. We also test the models on an out-of-time and out-of-universe sample to prove their accuracy and soundness. Our initial assumptions remained confirmed: non-financial variables allow to improve the accuracy and performance of banks’ credit rating models

 

 

Interested in this paper?
Buy the issue