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Article
Publication date: 23 November 2018

Guotai Chi and Bin Meng

The purpose of this paper is to propose a debt rating index system for small industrial enterprises that significantly distinguishes the default state. This debt rating system is…

Abstract

Purpose

The purpose of this paper is to propose a debt rating index system for small industrial enterprises that significantly distinguishes the default state. This debt rating system is constructed using the F-test and correlation analysis method, with the small industrial enterprise loans of a Chinese commercial bank as the data sample. This study establishes the weighting principle for the debt scoring model: “the more significant the default state, the larger is the weight.” The debt rating system for small industrial enterprises is constructed based on the standard “the higher the debt rating, the lower is the loss given default.”

Design/methodology/approach

In this study, the authors selected indexes that pass the homogeneity of variance test based on the principle that a greater deviation of the default sample’s mean from the whole sample’s mean leads to greater significance in distinguishing the default samples from the non-default samples. The authors removed correlated indexes based on the results of the correlation analysis and constructed a debt rating index system for small industrial enterprises that included 23 indexes.

Findings

Among the 23 indexes, the weights of 12 quantitative indexes add up to 0.547, while the weights of the remaining 11 qualitative indexes add up to 0.453. That is, in the debt rating of the small industry enterprises, the financial indexes are not capable of reflecting all the debt situations, and the qualitative indexes play a more important role in debt rating. The weights of indexes “X17 Outstanding loans to all assets ratio” and “X59 Date of the enterprise establishment” are 0.146 and 0.133, respectively; both these are greater than 0.1, and the indexes are ranked first and second, respectively. The weights of indexes “X6 EBIT-to- current liabilities ratio,” “X13 Ratio of capital to fixed” and “X78 Legal dispute number” are between 0.07 and 0.09, these indexes are ranked third to fifth. The weights of indexes “X3 Quick ratio” and “X50 Per capital year-end savings balance of Urban and rural residents” are both 0.013, and these are the lowest ranked indexes.

Originality/value

The data of index i are divided into two categories: default and non-default. A greater deviation in the mean of the default sample from that of the whole sample leads to greater deviation from the non-default sample’s mean as well; thus, the index can easily distinguish the default and the non-default samples. Following this line of thought, the authors select indexes that pass the F-test for the debt rating system that identifies whether or not the sample is default. This avoids the disadvantages of the existing research in which the standard for selecting the index has nothing to do with the default state; further, this presents a new way of debt rating. When the correlation coefficient of two indexes is greater than 0.8, the index with the smaller F-value is removed because of its weaker prediction capacity. This avoids the mistake of eliminating an index that has strong ability to distinguish default and non-default samples. The greater the deviation of the default sample’s mean from the whole sample’s mean, the greater is the capability of the index to distinguish the default state. According to this rule, the authors assign a larger weight to the index that exhibits the ability to identify the default state. This is different from the existing index system, which does not take into account the ability to identify the default state.

Details

Management Decision, vol. 57 no. 9
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 31 July 2018

Shanli Yu, Guotai Chi and Xin Jiang

The purpose of this paper is to propose a system with the highest discriminatory power by selecting an indicator system based on the K–S test according to the unique circumstances…

Abstract

Purpose

The purpose of this paper is to propose a system with the highest discriminatory power by selecting an indicator system based on the K–S test according to the unique circumstances of small enterprises.

Design/methodology/approach

The proposed method relies on calculating the K–S test statistical magnitude of D iteratively to reach a system with the maximum discriminatory power.

Findings

The empirical results, demonstrated using 3,045 small businesses from a Chinese bank, show that credit rating system should focus on the indicator system’s discriminatory power rather than a single indicator’s discriminatory power, because the interaction between indicators affects the discriminatory power of the system.

Practical implications

The proposed method creates a credit rating system with the highest discriminatory power, rather than its indicators, which is a more reasonable and novel approach to credit rating.

Originality/value

The approach is unique because the final system will have high discriminatory power and has excellent potential for decision support. The authors believe that this contribution is theoretically and practically relevant because credit rating for small business is especially difficult and complicated.

Details

Management Decision, vol. 57 no. 1
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 8 February 2018

Yajing Zhang and Guotai Chi

The purpose of this paper is to split loan customers to different credit ratings to ensure the results that show that customers with lower credit ratings have higher loss rates

Abstract

Purpose

The purpose of this paper is to split loan customers to different credit ratings to ensure the results that show that customers with lower credit ratings have higher loss rates, and the number of customers that satisfies the bell-shaped distribution. Hence, the number of credit ratings, the distribution of the rated obligors among ratings can achieve a meaningful differentiation of risk, which can avoid the loan pricing confusion.

Design/methodology/approach

The authors introduce a multi-objective programming to establish the credit rating model. Objective function 1 minimizes the absolute difference between the obligor number proportion and perfect client proportion, following a standard normal distribution. Objective function 2 minimizes the total difference of the deviation between two adjacent credit ratings’ loss rates. This study combines the two objective functions to ensure the obligor number distribution and the monotonicity of the loss rate, and applies genetic algorithm to solve the model.

Findings

This study’s analysis is based on data from 6,155 enterprises, provided by a Chinese bank and Prosper P2P loan data. The empirical results reveal that the proposed approach can ensure the balance between both criteria and avoid undue concentration of obligors in particular grades.

Originality/value

The proposed credit model could help building a reasonable credit rating system, which is the prerequisite of loan pricing; thus, inaccurate credit rating can cause incorrect loss rate estimates and loan pricing.

Details

Management Decision, vol. 56 no. 5
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 18 January 2008

Chaitanya Singh and Mark D. Griffiths

The purpose of this paper is to provide a descriptive analysis of the role of computer usage in determining the credit score for small business owners.

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Abstract

Purpose

The purpose of this paper is to provide a descriptive analysis of the role of computer usage in determining the credit score for small business owners.

Design/methodology/approach

Bitler, Robb, and Wolken report over three‐quarters of all small business use computerized systems. Since such systems are faster, more accurate, and less fallible than manual systems, we investigate whether increased use of computers leads to better credit ratings and leads to access to larger credit lines.

Findings

The results suggest that computer usage has virtually no effect in the determination of credit by financial service providers. Credit analysis and risk measures dominate the decision‐making process.

Research limitations/implications

The 3,561 surveyed firms are skewed toward very small firms with approximately 64 per cent having less than five employees and an 20 per cent having less than ten employees. Forty per cent of the firms have annual sales of less than $100,000 while only 1.8 per cent of the firms have sales in excess of $10 million.

Practical implications

Computerization is an operational necessity but credit worthiness is a function of the overall management characteristics of the firm and not the tools employed by the management team.

Originality/value

A minority of small businesses do not use computerization and these tend to be among the smallest in size and with the lowest levels of credit‐worthiness. Nonetheless, credit worthiness is determined by standard credit analysis and risk measures rather than operational efficiency.

Details

Managerial Finance, vol. 34 no. 2
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 28 January 2011

Li Ma, Junxun Dai and Xian Huang

The purpose of this paper is to analyze how the financial supervision authority utilizes the restrictions of capital constraints imposing on commercial banks the need to develop…

1661

Abstract

Purpose

The purpose of this paper is to analyze how the financial supervision authority utilizes the restrictions of capital constraints imposing on commercial banks the need to develop the macro economy.

Design/methodology/approach

This paper uses multilateral game to deduce the loan characteristics of banks, vector and void coordinates to analyze the behavior choices of banks under capital supervision, sets up an index to describe the risk preference of banks, and analyzes the process with Chinese data empirically.

Findings

This paper finds big banks have a loan preference for big enterprises and small banks have a preference for establishing a bank syndicate to pursue large projects. Further, the paper notes the conditions by which the heterology banks choose loans across the border and proves that changes of capital requirements would force the credit structure of the commercial banks to adjust along an efficient frontier broken line or an efficient frontier plane under the conditions of interest rate regulation or interest rate marketization, respectively.

Research limitations/implications

It is very complex to describe the choices of risk behavior of banks and the simple supervision method needs to be adjusted.

Practical implications

This paper finds that banks show risk preferences of credit structure, and capital constraints would affect it greatly; regulators should guard against capital constraint softening.

Originality/value

It is the first time that the conditions of banks beyond the loan border have been studied and the behavior adjustment of banks using the vector and void coordinate analyzed.

Details

China Finance Review International, vol. 1 no. 2
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 27 September 2022

Ambareen Beebeejaun

The official authorities have established several action plans including fiscal support measures to help micro, small and medium enterprises (MSMEs) counter the negative…

Abstract

Purpose

The official authorities have established several action plans including fiscal support measures to help micro, small and medium enterprises (MSMEs) counter the negative repercussions of COVID-19. In this regard, the purpose of this research is to critically assess the recent fiscal policies endeavoured by the Mauritian authorities in response to COVID-19, to assess the awareness and perception of some local MSMEs of these initiatives, to investigate the extent to which these MSMEs have benefited from them and also, to suggest recommendations to the Mauritian authorities on how to enhance the existing framework to ensure sustainable and equitable development.

Design/methodology/approach

This study has adopted both the quantitative and qualitative research methods. Primary data were obtained by conducting a survey of some Mauritian MSMEs, and secondary data were obtained by referring to laws and policy papers on the research topic. Some statistical tests were performed using SPSS software on the primary data to illustrate the research findings.

Findings

Despite the laudable initiatives, the survey conducted for this research demonstrates that MSMEs in Mauritius have a moderate awareness of these fiscal support measures. Furthermore, upon being asked whether they have availed of these tax incentives, again a moderate mean average was derived which implies that not all MSMEs have fully benefited from fiscal support to help them in countering the negative effects of COVID-19.

Originality/value

At present, this study will be amongst the first academic writings on the effectiveness of the fiscal measures undertaken by the Mauritian authorities to deal with issues entailed by the COVID-19. The study is carried out with the aim of combining a large amount of empirical, theoretical, and factual information that can be of use to various stakeholders and not only to academics.

Details

Journal of Entrepreneurship and Public Policy, vol. 11 no. 2/3
Type: Research Article
ISSN: 2045-2101

Keywords

Article
Publication date: 6 February 2024

Ali Haruna, Honoré Tekam Oumbé and Armand Mboutchouang Kountchou

The purpose of this paper is to examine the adoption of Islamic finance products (murabaha, musharakah, mudarabah, salam, ijara, istisna and Qard Hassan) by small and medium-sized…

Abstract

Purpose

The purpose of this paper is to examine the adoption of Islamic finance products (murabaha, musharakah, mudarabah, salam, ijara, istisna and Qard Hassan) by small and medium-sized enterprises (SMEs) in Cameroon, a non-Islamic Sub-Saharan African country.

Design/methodology/approach

It used primary data collected from a cross-section of 1,358 SMEs in eight regions of Cameroon using self-administered structured questionnaires. To facilitate the analyses and interpretation, these products are grouped into four groups based on certain characteristics. A multivariate probit model is estimated to take into account the interaction between these different Islamic finance products.

Findings

This study revealed that the desire to comply with Sharia law, awareness, attitude and intention were critical determinants of the decision to adopt Islamic finance products by Cameroonian SMEs. The least influential factors were perceived behavioral control, subjective norms, enterprise characteristics (size, age and location) and socio-demographic characteristics of the entrepreneur (gender, age and marital status). The extension of the multivariate approach permitted us to compute for predicted probabilities which revealed that there exists a synergy effect between the different Islamic finance products. That is, Cameroonian SMEs combine different Islamic finance products at the same time based on their needs. This is especially the case between the partnership-based products (musharakah and mudarabah) and manufacture/rent products (istisna and ijara).

Practical implications

Policymakers are encouraged to develop stakeholder-oriented strategies to promote effective consumer education in Islamic finance products which will boost awareness. Also, Islamic finance institutions should endeavor to develop innovative financial products that are Sharia-compliant and economically beneficial to the individual and business needs of SMEs. Moreover, policymakers and management of Islamic finance institutions should ensure the putting in place of effective governance structures to guide Islamic finance operations. Finally, policymakers should endeavor to take into account the possible synergy between the different Islamic finance products in their quest to develop this activity.

Originality/value

To the best of the authors’ knowledge, this is the first study that analyses the adoption of different Islamic finance products while taking into account the possible synergy that exists between these products.

Details

Journal of Islamic Marketing, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1759-0833

Keywords

Article
Publication date: 19 April 2013

Rosman Mahmood and M. Mohd Rosli

This paper aims to evaluate the microcredit position in the performance of micro and small enterprises (MSEs). In the case of Malaysian MSEs, the paper also aims to examine other…

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Abstract

Purpose

This paper aims to evaluate the microcredit position in the performance of micro and small enterprises (MSEs). In the case of Malaysian MSEs, the paper also aims to examine other relevant factors, especially entrepreneur‐specific factors, which may be equally important for improving firm performance.

Design/methodology/approach

Primary data were collected from 756 MSE samples in Kelantan, the state where a large majority of the microcredit recipients under AIM and TEKUN run their business. Descriptive and multiple regression analyses were used to analyze the data.

Findings

Microcredit is positively and significantly related to the performance of MSEs across all the microcredit programs under investigation. Other entrepreneur‐specific factors, especially entrepreneurial values and management practices are equally significant for enhancing firm performance.

Practical implications

This study reminds policy makers, support institutions and small entrepreneurs that the microcredit program alone is not enough for improving the performance of MSEs. Besides microcredit, entrepreneur‐specific factors are equally important for firm performance. Thus, readjustment to the existing microcredit programs, especially on entrepreneurial and managerial developments, should be made so that entrepreneurial values and management competencies of the entrepreneurs could be enhanced from time to time for superior performance of MSEs.

Originality/value

This paper proves that microcredit is important for firm performance. It also reminds theorists and practitioners that entrepreneur‐specific factors should not be neglected in their theoretical or practical consideration of micro and small firm performance.

Article
Publication date: 1 April 2006

Jia Chen

This article aims to present an overview of the historical development and current status of Chinese small and medium‐sized enterprises (SMEs) examine major political initiatives…

10146

Abstract

Purpose

This article aims to present an overview of the historical development and current status of Chinese small and medium‐sized enterprises (SMEs) examine major political initiatives contributing to SMEs' development and draw out some experience from SME development practices in China.

Design/methodology/approach

This paper is exploratory in nature, using archives of government documents and related statistics.

Findings

The article argues that the fundamental role of the market in allocating resources and the self‐operation status of SMEs should be respected, that it is imperative to encourage SMEs to optimise industrial structure, and that it is important to properly handle the government‐enterprise relations and bring the role of the government in macro control into full play so as to create a fair competitive environment for SMEs.

Practical implications

The Chinese experience of SME development is of great interest to policy‐makers and academics alike.

Originality/value

The article explores entrepreneurship and SME development in China from a policy‐making perspective.

Details

Journal of Small Business and Enterprise Development, vol. 13 no. 2
Type: Research Article
ISSN: 1462-6004

Keywords

Article
Publication date: 1 December 2004

David Gray, Frank Davies and Kevin Blanchard

A survey was undertaken to identify the ways in which small businesses in Lincolnshire used public relations. For many of the 51 activities, techniques and skills examined, it is…

2012

Abstract

A survey was undertaken to identify the ways in which small businesses in Lincolnshire used public relations. For many of the 51 activities, techniques and skills examined, it is found that only a minority of small firms practise them. Analysis of the results of the survey highlight an interesting connection between those businesses with a high rate of growth and use of certain public relations activities and techniques. Specifically, based on Mann‐Whitney tests and using a restrictive level of significance (0.1 per cent), it is found that managing government relations (local or central), mounting exhibitions (consumer), providing media news releases, and writing letters to the media are associated with growth. As these four are not commonly used it is suggested that these, among other uses of PR, should be included in skills programmes for small business development.

Details

Corporate Communications: An International Journal, vol. 9 no. 4
Type: Research Article
ISSN: 1356-3289

Keywords

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