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Blockchains, Real-Time Accounting and the Future of Credit Risk Modeling

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Abstract

In this paper (letter) I discuss how blockchains potentially could affect the way credit risk is modeled, and how the improved trust and timing associated with blockchain-enabled real-time accounting could improve default prediction. To demonstrate the (quite substantial) effect the change would have on well-known credit risk measures, a simple case-study compares Z-scores and Merton distances to default computed using typical accounting data of today to the same risk measures computed under a hypothetical future blockchain regime.

Suggested Citation

  • Byström, Hans, 2016. "Blockchains, Real-Time Accounting and the Future of Credit Risk Modeling," Working Papers 2016:4, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:2016_004
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    File URL: http://project.nek.lu.se/publications/workpap/papers/wp16_4.pdf
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    References listed on IDEAS

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    1. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    2. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    3. David Yermack, 2015. "Corporate Governance and Blockchains," NBER Working Papers 21802, National Bureau of Economic Research, Inc.
    4. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    5. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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    Cited by:

    1. Nelli AMARFII-RAILEAN, 2020. "Streamlining Management in the Agri-Food Sector through Blockchain Technology," Eastern European Journal for Regional Studies (EEJRS), Center for Studies in European Integration (CSEI), Academy of Economic Studies of Moldova (ASEM), vol. 6(2), pages 92-107, December.

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    More about this item

    Keywords

    blockchain; credit risk modeling; real-time accounting;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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