The effect of internationalisation on modelling credit risk for SMEs: evidence from UK market

Jairaj Gupta, Nicholas Wilson, Andros Gregoriou, Jerome Healy

Research output: Contribution to journalArticle

Abstract

This study considers domestic and international small and medium-sized enterprises (SMEs) of the United Kingdom sepa- rately while modelling their default risk. To establish the empirical validation, separate one-year default prediction models are devel- oped using dynamic logistic regression technique that encapsulates significant financial information over an analysis period of 2000 to 2009. Almost an identical set of explanatory variables affect the default probability of domestic and international SMEs, which contradicts the need for separate default risk models. However, the lower predictive accuracy measures of the model developed for international SMEs motivate us to compare the weights of regression coefficients of the models developed for domestic and international firms. Test results confirm that four out of the nine common predictors display significant statistical differences in their weights. However, these differences do not contribute to the discriminatory performance of the default prediction models, given that we report very little difference in each model’s classification performance.
Original languageEnglish
Pages (from-to)397-413
Number of pages17
JournalJournal of International Financial Markets, Institutions and Money
Volume31
DOIs
Publication statusPublished - 15 May 2014

Keywords

  • Credit risk modelling
  • Bankruptcy
  • Corporate failure
  • Small and medium enterprises
  • Internationalisation

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