Behavioral credit scoring model for technology-based firms that considers uncertain financial ratios obtained from relationship banking

So Young Sohn, Yoon Seong Kim

Research output: Contribution to journalArticle

18 Citations (Scopus)

Abstract

The Korea government offers technology credit guarantee service to many technology-based small and medium enterprises (SMEs) suffering from funding problems. Many advanced application credit scoring models have been developed based on technology to reduce the high default rates of this service. However, a credit scoring model which can reflect changes in firms after a loan has been granted has not yet been developed. In the study reported here, we propose a behavioral credit scoring model that reflects the debt-paying ability of recipient firms, which is observed as a time series of financial ratios of firms via the relationship banking activities. We utilize this time series, as well as missing patterns of financial information, as additional predictors of loan defaults. We compare our proposed behavioral credit scoring models, fitted at different points of elapsed time, to the application credit scoring model. Finally, we suggest the best behavioral credit scoring model for technology-based SMEs. Our study can contribute to the reduction of the risk involved in credit funding for technology-based SMEs.

Original languageEnglish
Pages (from-to)931-943
Number of pages13
JournalSmall Business Economics
Volume41
Issue number4
DOIs
Publication statusPublished - 2013 Dec 1

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Relationship banking
Financial ratios
Credit scoring
Technology-based firms
Small and medium-sized enterprises
Loans
Funding
Default rate
Financial information
Korea
Government
Credit guarantee
Credit
Debt
Predictors

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics

Cite this

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abstract = "The Korea government offers technology credit guarantee service to many technology-based small and medium enterprises (SMEs) suffering from funding problems. Many advanced application credit scoring models have been developed based on technology to reduce the high default rates of this service. However, a credit scoring model which can reflect changes in firms after a loan has been granted has not yet been developed. In the study reported here, we propose a behavioral credit scoring model that reflects the debt-paying ability of recipient firms, which is observed as a time series of financial ratios of firms via the relationship banking activities. We utilize this time series, as well as missing patterns of financial information, as additional predictors of loan defaults. We compare our proposed behavioral credit scoring models, fitted at different points of elapsed time, to the application credit scoring model. Finally, we suggest the best behavioral credit scoring model for technology-based SMEs. Our study can contribute to the reduction of the risk involved in credit funding for technology-based SMEs.",
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Behavioral credit scoring model for technology-based firms that considers uncertain financial ratios obtained from relationship banking. / Sohn, So Young; Kim, Yoon Seong.

In: Small Business Economics, Vol. 41, No. 4, 01.12.2013, p. 931-943.

Research output: Contribution to journalArticle

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