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

Author

Listed:
  • Edward I. Altman

    (New York University)

  • Alessandro Giannozzi

    (Università di Firenze,)

  • Oliviero Roggi

    (Università di Firenze)

  • Gabriele Sabato

    (Royal Bank of Scotland)

Abstract

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

Suggested Citation

  • Edward I. Altman & Alessandro Giannozzi & Oliviero Roggi & Gabriele Sabato, 2013. "Building Sme rating: is it necessary for lenders to monitor financial statements of the borrowers?," BANCARIA, Bancaria Editrice, vol. 10, pages 54-71, October.
    • Handle: RePEc:ban:bancar:v:10:y:2013:m:october:p:54-71
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    File URL: http://www.bancaria.it/en/building-sme-rating-is-it-necessary-for-lenders-to-monitor-financial-statements-of-the-borrowers/
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    Citations

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    Cited by:

    1. Edward I. Altman & Marco Balzano & Alessandro Giannozzi & Stjepan Srhoj, 2023. "Revisiting SME default predictors: The Omega Score," Journal of Small Business Management, Taylor & Francis Journals, vol. 61(6), pages 2383-2417, November.
    2. Carmen Gallucci & Rosalia Santullli & Michele Modina & Vincenzo Formisano, 2023. "Financial ratios, corporate governance and bank-firm information: a Bayesian approach to predict SMEs’ default," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(3), pages 873-892, September.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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