What is Worth More for the Merit of Credit? Evidence from the Credit System in the North Eastern Italian District.

Abstract

Literature agrees about Basel I and II regulations’ inefficiency in improving credit allocation. Recent crisis demonstrates that rating standards fails to generate an efficient asset evaluation system. This is mainly due because of bias in corporate risk estimation. Nevertheless, when dealing with Basel III no single stream of though can be find, especially for SMEs credit scoring implications. We think that new foundations to rating and scoring practices must be searched. The paper presents a framework for a new methodology based on an integrated view or return-to-risk performance related to Lintner’s (1965) certainty equivalent and firm’s return-risk relation analysis (Mantovani et al, 2013). The integration of Lintner’s model with such risks analysis is fundamental in SMEs evaluation, for which no specific standard rating could be produced and also certainty equivalent model cannot find direct application. Focusing on SMEs, we consider a sample of manufacturing firms in the North-East of Italy, where the economic impact of SMEs is the highest and where such firms present best performances.

Keywords: SMEs financing, Basel III, Ratings, Certainty equivalent

JEL Classification: G32, M10, G28