Article Abstract:
Financial classification issues, and particularly the financial distress problem, continue to be subject to vigorous investigation. The corporate credit granting process has not received as much attention in the literature. This paper examines the relative effectiveness of parametric, nonparametric and judgmental classification procedures on a sample of corporate credit data. The judgmental model is based on the Analytic Hierarchy Process. Evidence indicates that (nonparametric) recursive partitioning methods provide greater information than simultaneous partitioning procedures. The judgmental model is found to perform as well as statistical models. A complementary relationship is proposed between the statistical and the judgmental models as an effective paradigm for granting credit. (Reprinted by permission of the publisher.)
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Article Abstract:
The bid-ask spread can be decomposed into two parts: one part due to asymmetric information and the other part due to other factors such as monopoly power. The part due to asymmetric information attenuates statistical biases in mean return, variance, and serial covariance. Thus, using spread data to adjust for biases in return moments requires knowing not only the spread but the composition of the spread. Furthermore, any spread-estimation procedure using transaction prices must estimate two spread components. On the other hand, the appropriateness of some previously suggested statistical corrections is independent of the spread composition. (Reprinted by permission of the publisher.)
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Article Abstract:
Commonly used trade credit terms implicitly define a high interest rate that operates as an efficient screening device where information about buyer default risk is asymmetrically held. By offering trade credit, a seller can identify prospective defaults more quickly than if financial institutions were the sole providers of short-term financing. The information is valuable in cases where the seller has made nonsalvageable investments in buyers since it enables the seller to take actions to protect such investments. (Reprinted by permission of the publisher.)
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