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Evaluation of credit risk based on firm performance. (English) Zbl 1176.90312

Summary: This paper investigates whether productive inefficiency measured as the distance from the industry’s ‘best practice’ frontier is an important ex-ante predictor of business failure. We use samples of French textiles, wood and paper products, computers and R&D companies to obtain efficiency estimates for individual firms in each industry. These efficiency measures are derived from a directional technology distance function constructed empirically using non-parametric data envelopment analysis (DEA) methods. Estimating binary and ordered logit regression models we find that productive efficiency has significant explanatory power in predicting the likelihood of default over and above the effect of standard financial indicators.

MSC:

90B50 Management decision making, including multiple objectives
91G40 Credit risk
91B30 Risk theory, insurance (MSC2010)
91B38 Production theory, theory of the firm

Software:

BANKADVISER
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References:

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