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A Credit Scoring Model for SMEs Based on Accounting Ethics

Author

Listed:
  • Bo Kyeong Lee

    () (Department of Information & Industrial Engineering, Yonsei University, 50 Yonsei-ro Seodaemun-gu, Seoul 03722, Korea)

  • So Young Sohn

    () (Department of Information & Industrial Engineering, Yonsei University, 50 Yonsei-ro Seodaemun-gu, Seoul 03722, Korea)

Abstract

Various types of government credit guarantee programs exist for small- and medium-sized enterprises (SMEs). The SMEs guaranteed by these programs can resolve their financial difficulties by obtaining loans from banks or being included in a pool for the issuance of primary collateralized bond obligations. However, the loan default rate for these supported firms is high owing to their moral hazard, which can be associated with unethical behavior in the accounting process. Since the stakeholders of credit guarantee programs initiated by the government include not only lenders and borrowers, but also taxpayers, the default risk of moral hazard must be minimized. Thus, an additional evaluation step is required to deal with accounting ethics, which has not thus far been considered in the literature. In this study, we propose an accounting ethics-based credit scoring model as a complementary approach, which can be used to select suitable borrowers. The proposed model is expected to reduce the default rate resulting from the moral hazard associated with unethical accounting behaviors in the supported firms.

Suggested Citation

  • Bo Kyeong Lee & So Young Sohn, 2017. "A Credit Scoring Model for SMEs Based on Accounting Ethics," Sustainability, MDPI, Open Access Journal, vol. 9(9), pages 1-15, September.
  • Handle: RePEc:gam:jsusta:v:9:y:2017:i:9:p:1588-:d:111035
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    References listed on IDEAS

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    1. Johannes I. F. Henning & Henry Jordaan, 2016. "Determinants of Financial Sustainability for Farm Credit Applications—A Delphi Study," Sustainability, MDPI, Open Access Journal, vol. 8(1), pages 1-15, January.
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    6. Berkman, Henk & Cole, Rebel A. & Fu, Lawrence J., 2009. "Expropriation through loan guarantees to related parties: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 141-156, January.
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    9. You Zhu & Chi Xie & Bo Sun & Gang-Jin Wang & Xin-Guo Yan, 2016. "Predicting China’s SME Credit Risk in Supply Chain Financing by Logistic Regression, Artificial Neural Network and Hybrid Models," Sustainability, MDPI, Open Access Journal, vol. 8(5), pages 1-17, May.
    10. Yonghan Ju & So Young Sohn, 2015. "Stress test for a technology credit guarantee fund based on survival analysis," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 66(3), pages 463-475, March.
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    More about this item

    Keywords

    credit scoring model; SMEs; accounting ethics;

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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