Having a credit record and a credit score can be an important determinant of credit access. Surprisingly little is known, however, about people who lack credit records or scores. This article ...provides the first documented analysis of the characteristics of consumers without credit records, called "credit invisibles," and of consumers whose records are treated as "unscorable‚" by a widely used credit-scoring model. Our estimates suggest that 26 million adults, representing about 11 percent of the adult population, lack credit records. An additional 8.3 percent, or 19.6 million adults, have credit records that are unscored. We find that the incidence of having a credit record is not evenly distributed. Young, elderly, minority, and lower-income consumers are more likely to be credit invisible or have an unscored record. In addition, our analysis finds that observable credit performance is not widely available for such consumers, which may hinder the ability of alternative data to expand credit access for these consumers.
•We discuss the local economy impact on SMEs’ credit risk.•We propose using kriging methods to incorporate the spatial dependence among firms.•We make the comparison with traditional techniques based ...on zip code grouping.•The proposed methodology increases the discrimination power in 6 points of Gini.•We argue about the robustness of the proposed methodology over zip code grouping.
Credit scoring models are important tools in the credit granting process. These models measure the credit risk of a prospective client based on idiosyncratic variables and macroeconomic factors. However, small and medium sized enterprises (SMEs) are subject to the effects of the local economy. From a data set with the localization and default information of 9 million Brazilian SMEs, provided by Serasa Experian (the largest Brazilian credit bureau), we propose a measure of the local risk of default based on the application of ordinary kriging. This variable has been included in logistic credit scoring models as an explanatory variable. These models have shown better performance when compared to models without this variable. A gain around 7 percentage points of KS and Gini was observed.
Previous research on calculative intermediaries shows how these effectively challenge, distort, and disrupt accounting practices in ways that policy‐makers might not anticipate. The promises of ...surveillance capitalism—with its attendant data architectures, datafication processes, and technological sophistication—are different, supposing more accurate ways of reading individuals and greater calculative certainty overall. Yet there is little empirical research to explore how surveillance capitalism manifests itself at the organizational level, either conceptually or operationally. As a result, it remains uncertain whether such specters of omniscience are as haunting in reality as they appear in theory. We explore these themes by way of an ethnographic study into credit scoring in China, showing how intermediary organizations developed a multiplicity of credit scoring models based on machine learning and big data that differed both from original expectations and from each other. These different “renditions” of credit scoring suggest that the data architectures of surveillance capitalism are just as much subject to challenge and adaptation by intermediary organizations as calculative practices, such as accounting, are in more analog environments.
Résumé
La montagne est haute et l’empereur lointain : l’évaluation du risque de crédit et l’infrastructure du capitalisme de surveillance en Chine
Les recherches antérieures sur les intermédiaires de calcul montrent comment ceux‐ci contestent, altèrent et bousculent les principes de la méthode comptable, et ce, de manière inattendue pour les décideurs. Les promesses du capitalisme de surveillance — incluant les architectures de données, les processus de datafication et la sophistication technologique qui l’accompagnent — sont tout autres, car elles tentent d’apporter une plus grande précision des méthodes utilisées pour étudier le comportement des individus et des calculs en général. Pourtant, il existe peu de recherches empiriques sur la manière dont le capitalisme de surveillance est pratiqué au niveau organisationnel, que ce soit sur le plan conceptuel ou opérationnel. Par conséquent, il n’est pas certain si ces manifestations d’omniscience sont aussi fréquentes dans la réalité qu’elles ne le sont en théorie. Les auteurs explorent ces thèmes au moyen d’une étude ethnographique sur l’évaluation du risque de crédit en Chine. Ils montrent comment les organisations intermédiaires ont élaboré une multiplicité de modèles d’évaluation du risque de crédit, basés sur l’apprentissage automatique et les mégadonnées qui diffèrent à la fois des attentes initiales et les uns des autres. Ces différents « rendus » de l’évaluation du risque de crédit suggèrent que les architectures de données du capitalisme de surveillance sont tout aussi sujettes à la contestation et à l’adaptation par les organisations intermédiaires que les pratiques de calcul telles que la comptabilité le sont dans des contextes plus analogiques.
Trade credit and supplier competition Chod, Jiri; Lyandres, Evgeny; Yang, S. Alex
Journal of financial economics,
02/2019, Letnik:
131, Številka:
2
Journal Article
Recenzirano
Odprti dostop
This paper examines how competition among suppliers affects their willingness to provide trade credit financing. Trade credit extended by a supplier to a cash constrained retailer allows the latter ...to increase cash purchases from its other suppliers, leading to a free rider problem. A supplier that represents a smaller share of the retailer’s purchases internalizes a smaller part of the benefit from increased spending by the retailer and, as a result, extends less trade credit relative to its sales. In consequence, retailers with dispersed suppliers obtain less trade credit than those whose suppliers are more concentrated. The free rider problem is especially detrimental to a trade creditor when the free-riding suppliers are its product market competitors, leading to a negative relation between product substitutability among suppliers to a given retailer and trade credit that the former provide to the latter. We test the model using both simulated and real data. The estimated relations are consistent with the model’s predictions and are statistically and economically significant.
ALL DATA IS NOT CREDIT DATA Rodriguez, Lorena
Columbia law review,
11/2020, Letnik:
120, Številka:
7
Journal Article
Recenzirano
In June 2015, the Supreme Court decided Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. and held that disparate impact claims are cognizable under the Fair ...Housing Act. Four years later, in August 2019, the Department of Housing and Urban Development published a proposed rule purporting to align the agency’s regulations with the Supreme Court’s interpretation of the Fair Housing Act in Inclusive Communities. The proposed rule, however, is inconsistent with Inclusive Communities and, in practice, effectively allows lenders to circumvent liability for algorithm-based disparate impact. This Note argues that these consequences are the result of a gap in statutory accountability within the Fair Housing Act for algorithm-based discrimination. It then calls for more permanent solutions to this problem that would prevent HUD—or any other agency under any administration—from interpreting the Fair Housing Act in a manner that contravenes the statute’s history and purpose.
An increase in the household debt to GDP ratio predicts lower GDP growth and higher unemployment in the medium run for an unbalanced panel of 30 countries from 1960 to 2012. Low mortgage spreads are ...associated with an increase in the household debt to GDP ratio and a decline in subsequent GDP growth, highlighting the importance of credit supply shocks. Economic forecasters systematically over-predict GDP growth at the end of household debt booms, suggesting an important role of flawed expectations formation. The negative relation between the change in household debt to GDP and subsequent output growth is stronger for countries with less flexible exchange rate regimes. We also uncover a global household debt cycle that partly predicts the severity of the global growth slowdown after 2007. Countries with a household debt cycle more correlated with the global household debt cycle experience a sharper decline in growth after an increase in domestic household debt.
The rise of credit default swaps (CDS) provides creditors with a market-based approach to obtaining protection, but it can also affect lenders' monitoring of the borrowers. We find that after CDS ...begin trading on a given firm, new loans to that firm are less likely to require collateral and have less strict financial covenants, even controlling for endogeneity. The effects are stronger when lenders have easier access to CDS, for safer firms, credit lines, and performance-based covenants. Our evidence is consistent with the theory that the introduction of CDS trading makes loan contracting more effective for better quality borrowers.
•Loans issued to firms require less collateral and less strict financial covenants after CDS on the firm's debt start trading.•These effects are more pronounced when the CDS market is more liquid and when the lender is a CDS user.•These effects are stronger for firms that have better credit quality.•Our results suggest that CDS may improve contracting efficiency, especially for high-quality borrowers.
Some Aspects in Trade Recеivables Assessment Ilieva, Marinela; Tsonkova, Vanya
Proceedings of the ... International Conference on Business Excellence,
06/2024, Letnik:
18, Številka:
1
Journal Article
Recenzirano
Odprti dostop
One of the most important aspects of operational financial management is related to the management of the working capital of enterprises. A significant portion of this capital is invested in trade ...receivables, which are obtained from deferred sales. On the one hand, nowadays trade credit has a stimulating effect on customer purchases, but on the other hand, incorrect assessment of the creditworthiness of customers and the risk of non-payment (default risk) can negatively affect the financial condition of the enterprise and lead to chain bankruptcies. In the specialized literature on company finance management, the problems of working capital management and risk management of trade receivables are considered in detail. However, the question of the complex assessment of the creditworthiness of customers and the decision on the optimal credit limit remains to some extent insufficiently developed. Summarizing the following key components considered in the literature – 1) overall economic situation, ownership, management and strategy of the company; 2) its revenue and profitability; 3) liquidity and financial leverage; 4) cash flow and turnover, this article focuses on developing and demonstrating the application of an approach to assess the financial condition of customers, to make an adequate decision on credit limit and to avoid the risk of non-payment of commercial loans. The article also presents the results of a descriptive statistical analysis regarding some key financial indicators of Bulgarian enterprises, the credit limits requested by them and the results of applying the presented model.
The study examined the impact of individualized credit counseling delivered to nearly 8,000 consumer clients during 1997. Credit bureau data provided objective measures of credit performance at a ...variety of margins between 1997 and 2000 for counseled clients, relative to a comparison group of uncounseled borrowers. Receipt of counseling was associated with a positive change in borrower credit profiles. Techniques to control for self-selection into counseling reveal that much of the improvement was attributable to characteristics unique to consumers who sought counseling. But counseling itself was associated with substantial reductions in debt and account usage, and appeared to provide the greatest benefit to those borrowers who had the least ability to handle credit prior to counseling.
As an integrated part of a supply contract, trade credit has intrinsic connections with supply chain coordination and inventory management. Using a model that explicitly captures the interaction of ...firms’ operations decisions, financial constraints, and multiple financing channels (bank loans and trade credit), this paper attempts to better understand the risk-sharing role of trade credit—that is, how trade credit enhances supply chain efficiency by allowing the retailer to partially share the demand risk with the supplier. Within this role, in equilibrium, trade credit is an indispensable external source for inventory financing, even when the supplier is at a disadvantageous position in managing default relative to a bank. Specifically, the equilibrium trade credit contract is net terms when the retailer’s financial status is relatively strong. Accordingly, trade credit is the only external source that the retailer uses to finance inventory. By contrast, if the retailer’s cash level is low, the supplier offers two-part terms, inducing the retailer to finance inventory with a portfolio of trade credit and bank loans. Further, a deeper early-payment discount is offered when the supplier is relatively less efficient in recovering defaulted trade credit, or the retailer has stronger market power. Trade credit allows the supplier to take advantage of the retailer’s financial weakness, yet it may also benefit both parties when the retailer’s cash is reasonably high. Finally, using a sample of firm-level data on retailers, we empirically observe the inventory financing pattern that is consistent with what our model predicts.
This paper was accepted by Vishal Gaur, operations management.
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