Factors influencing credit assessment

Abstract

This study examines the perceptions of credit analysts on which factors determine credit risk. A sample drawn from the major international credit underwriters was used to rank a previously derived set of micro-economic variables in terms of their importance as predictors of credit risk and ultimately corporate failure. The study aimed at supplementing the existing empirical research into corporate failure, which has largely been based on the predictive power of financial ratios, with expert perceptions. The results showed that the respondents relied heavily on secondary type data; i.e. the fact that banks had already withdrawn facilities, or that there had been prior instances of fraud or insolvency. The respondent’s own assessment of the primary data was rated of lower importance.