Probability of Default and Probability of Excellence, an Inverse Model of Rating - One More Tool to Overcome the Crisis: An Empirical Analysis

Business Systems Review (ISSN 2280-3866), 2013. Volume 2. Issue 2. pp.71-93. Special Issue - Selected Papers of the 1st Business Systems Laboratory International Symposium

23 Pages Posted: 2 Apr 2013 Last revised: 10 Apr 2013

Date Written: April 1, 2013

Abstract

After rated as "excellent firms" which in 2010 showed good profitability and a solid financial balance, this essay aims to explore the possibility that a rating model already focused on bankruptcy prediction may also be a valuable tool for the selection of firms that after three years could turn to a state of excellence. Furthermore, the test is carried out and completed even starting from the opposite side: it detects the opportunity of a model calibrated on the prediction of successful firms to provide accurate results in the calculation of the probability of default. In this paper we empirically examine the determinants of a predictive econometric model, in a time frame of three years, using the statistical technique of logistic regression on a panel of 5,000 North Italian SMEs over the period 2007-2010.

Keywords: Rating, SME finance, Modelling credit risk, Value of firms, Structural models

JEL Classification: G3, P43

Suggested Citation

Muscettola, Marco and Naccarato, Francesco, Probability of Default and Probability of Excellence, an Inverse Model of Rating - One More Tool to Overcome the Crisis: An Empirical Analysis (April 1, 2013). Business Systems Review (ISSN 2280-3866), 2013. Volume 2. Issue 2. pp.71-93. Special Issue - Selected Papers of the 1st Business Systems Laboratory International Symposium , Available at SSRN: https://ssrn.com/abstract=2243162

Marco Muscettola (Contact Author)

Independent Researcher ( email )

Bari
Italy

Francesco Naccarato

University of Padova ( email )

Via 8 Febbraio 1848, 2
Padova, Vicenza 35122
Italy

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