The value of non-financial information in SME risk management

Edward I. Altman, Gabriele Sabato, Nicholas Wilson

Abstract

ABSTRACT

Few studies that have focused on developing credit risk models specifically for small and medium-sized enterprises (SMEs) have included non-financial information as a predictor of company creditworthiness. In this study we have available non-financial, regulatory compliance and "event" data to supplement the limited accounting data that is often available for non-listed firms. We employ a sample consisting of over 5.8 million sets of accounts of unlisted firms, of which over 66,000 failed during the period 2000-2007. We find that data relating to legal action by creditors to recover unpaid debts, company filing histories, comprehensive audit report/opinion data and firm-specific characteristics make a significant contribution to increasing the default prediction power of risk models built specifically for SMEs.