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Loss given default or default status: Which is better to determine farmers’ credit ratings?

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  • Chai, Nana
  • Shi, Baofeng
  • Hua, Yiting

Abstract

This paper establishes a novel farmers’ credit rating model and explores the difference in credit rating based on loss given default (LGD) and default status, using unique loan data from the CFPA Microfinance Management Co., Ltd in China. The empirical results show that the discrimination ability of the farmers’ credit rating method with LGD as the dependent variable is better than that with default status as the dependent variable. Furthermore, the theoretical analysis and empirical verification of this paper provide valuable supplements to the existing literature and new risk measurement insights for the risk management technicians of financial institutions.

Suggested Citation

  • Chai, Nana & Shi, Baofeng & Hua, Yiting, 2023. "Loss given default or default status: Which is better to determine farmers’ credit ratings?," Finance Research Letters, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:finlet:v:53:y:2023:i:c:s154461232300048x
    DOI: 10.1016/j.frl.2023.103674
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    References listed on IDEAS

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    1. Sun, Yue & Chai, Nana & Dong, Yizhe & Shi, Baofeng, 2022. "Assessing and predicting small industrial enterprises’ credit ratings: A fuzzy decision-making approach," International Journal of Forecasting, Elsevier, vol. 38(3), pages 1158-1172.
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    15. Ojo, Temitope & Adetoro, Adetoso A. & Ogundeji, Abiodun A. & Belle, Johannes A., 2021. "Quantifying the Determinants of Climate Change Adaptation Strategies and Farmers’ Access to Credit in South Africa," 2021 Conference, August 17-31, 2021, Virtual 315853, International Association of Agricultural Economists.
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    More about this item

    Keywords

    Credit rating; Loss given default; Default status; Microfinance; Farmer; China;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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