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Abstract

Based on a unique hand-collected database of 389 loans obtained from a French social bank dealing with small businesses, this paper compares two predictive models of future default events: the first relies on soft information (SI model), the second on hard information (HI model). The results indicate that the SI model outperforms the HI model in terms of forecast quality and goodness of fit. In so doing, this paper provides further empirical evidence that, when they serve small businesses, small or decentralized banks have a greater ability to collect and act on soft information. This empirical conclusion conveys practical implication for social banks’ internal credit rating procedures, especially in their calibration of capital requirements.

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File URL: http://crem.univ-rennes1.fr/wp/2012/201226.pdf
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Bibliographic Info

Paper provided by Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS in its series Economics Working Paper Archive (University of Rennes 1 & University of Caen) with number 201226.

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Date of creation: Jun 2012
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Handle: RePEc:tut:cremwp:201226

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Postal: CREM (UMR CNRS 6211) – Faculty of Economics, 7 place Hoche, 35065 RENNES Cedex
Phone: 02 23 23 35 47
Fax: (33) 2 23 23 35 99
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Web page: http://crem.univ-rennes1.fr/
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Postal: CREM (UMR CNRS 6211) - Faculty of Economics, 7 place Hoche, 35065 Rennes Cedex - France
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Related research

Keywords: Credit Rating; Debt Default; Small Business Lending; Relationship Lending; Social Banking;

Find related papers by JEL classification:

• G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
• M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics

This paper has been announced in the following NEP Reports:

• NEP-ALL-2012-07-29 (All new papers)
• NEP-BAN-2012-07-29 (Banking)
• NEP-CBA-2012-07-29 (Central Banking)
• NEP-CFN-2012-07-29 (Corporate Finance)
• NEP-CTA-2012-07-29 (Contract Theory & Applications)
• NEP-FOR-2012-07-29 (Forecasting)
• NEP-RMG-2012-07-29 (Risk Management)

References

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21. Isabelle Agier & Ariane Szafarz, 2011. "Subjectivity in Credit Allocation to Micro-Entrepreneurs: Evidence from Brazil," Working Papers CEB 11-016, ULB -- Universite Libre de Bruxelles.
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