Small Business Credit Scoring: Evidence from Japan

25 Pages Posted: 21 Jun 2010

See all articles by Hideaki Hirata

Hideaki Hirata

Hosei University; Japan Center for Economic Research

Ryo Hasumi

Japan Center for Economic Research

Date Written: June 20, 2010

Abstract

This paper studies the Japanese credit scoring market using data on 2,000 SMEs and a small business credit scoring model widely used in the market. After constructing a model for determining a bank’s profit maximization, we find the optimum loan sizes and profit levels, and point out some lending pitfalls based on small business credit scoring. We show that solving the problems of adverse selection and window dressing are the most important things to do to increase the profitability of SBCS lending. In addition, omitted variable bias and transparency of financial statements are also important.

Keywords: small business credit scoring, adverse selection, window dressing

JEL Classification: G21, G30

Suggested Citation

Hirata, Hideaki and Hasumi, Ryo, Small Business Credit Scoring: Evidence from Japan (June 20, 2010). Available at SSRN: https://ssrn.com/abstract=1627722 or http://dx.doi.org/10.2139/ssrn.1627722

Hideaki Hirata (Contact Author)

Hosei University ( email )

2-17-1 Fujimi
Chiyoda, Tokyo 112-6601
Japan

Japan Center for Economic Research ( email )

2-6-1, Nihonbashi Kayabacho
Chuo-ku, Tokyo 103-0025
Japan

Ryo Hasumi

Japan Center for Economic Research

2-6-1, Nihonbashi Kayabacho
Chuo-ku, Tokyo 103-0025
Japan

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