The impact of social and economic factors in the credit risk management of SME
Abstract
Numerous research studies deal with the issue of researching the impacts on credit risk determinants in the SME segment. The study of economic factors that are easier to quantify from methodological point of view, and which prevent complex evaluation of causality of interest rate risk and the discovery of various social barriers dominate. This consistent fact forms a platform in designing the research to introduce a model of dependency of effective credit risk management in the SME segment on significant social and economic factors. Empirical research was carried out in the Czech business environment in 2017 on a sample of 352 enterprises. The structural analysis modeling (SEM) was the main analytical method. The research results confirmed the fact that an effective approach to managing the SME’s credit risk is determined by a number of factors of a noneconomic nature. The most important are education and family environment. These are followed by economic factors, such as a relationship with banks, financial knowledge in the area of capital and payment discipline. The multi-spectral dimension of the findings and causality also opened up a wide discussion and prepared a high-quality data research base for further deeper exploration of this issue.
Keyword : small and medium-sized enterprises, SME, credit risk, social factor, economic factor, credit risk management, Czech Republic
How to Cite
Belas, J., Smrcka, L., Gavurova, B., & Dvorsky, J. (2018). The impact of social and economic factors in the credit risk management of SME. Technological and Economic Development of Economy, 24(3), 1215-1230. https://doi.org/10.3846/tede.2018.1968
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
Babin, B. J., Hair, J. F., & Boles, J. S. (2008). Publishing research in marketing journals using structural equation modeling. The Journal of Marketing Theory and Practice, 16(4), 279-286. https://doi.org/10.2753/MTP1069-6679160401
Beck, T., Degryse, H., De Haas, R., & Van Horen, N. (2015). When arm’s length is too far: Relationship banking over the credit cycle. Systematic Risk Centre. Discussion Paper No 33.
Beck, T., & Demirguc-Kunt, A. (2006). Small and medium-size enterprises: Access to finance as a growth constraint. Journal of Banking & Finance, 30(11), 2931-2943. https://doi.org/10.1016/j.jbankfin.2006.05.009
Berger, A. N., & Udell, G. F. (2006). A more complete conceptual framework for SME finance. Journal of Banking & Finance, 30(11), 2945-2966. https://doi.org/10.1016/j.jbankfin.2006.05.008
Bruns, V., & Fletcher, M. (2008). Banks’ risk assessment of Swedish SMEs. Venture Capital, 10(2), 171-194. https://doi.org/10.1080/13691060801946089
Corazza, M., Funari, S., & Gusso, R. (2016). Creditworthiness evaluation of Italian SMEs at the beginning of the 2007–2008 crisis: An MCDA approach. The North American Journal of Economics and Finance, 38, 1-26. https://doi.org/10.1016/j.najef.2016.05.008
Dierkes, M., Erner, C., Langer, T., & Norden, L. (2013). Business credit information sharing and default risk of private firms. Journal of Banking & Finance, 37(8), 2867-2878. https://doi.org/10.1016/j.jbankfin.2013.03.018
Eggers, F., Kraus, S., Hughes, M., Laraway, S., & Snycerski, S. (2013). Implications of customer and entrepreneurial orientations for SME growth. Management Decision, 51(3), 524-546. https://doi.org/10.1108/00251741311309643
Eisinga, R., Grotenhuis, M., & Pelzer, B. (2012). The reliability of a two-item scale: Pearson, Cronbach, or Spearman-Brown? International Journal of Public Health, 58(4), 637-642. https://doi.org/10.1007/s00038-012-0416-3
European Commission. (2016). SME Performance Review 2015/2016. Retrieved from http://ec.europa.eu/growth/smes/business-friendly-environment/performance-review-2016_en#annual-report
European Union. (2016). SBA Fact Sheet, European Commission Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs. Brussels.
Fairlie, R. W., & Holleran, W. (2012). Entrepreneurship training, risk aversion and other personality traits: Evidence from a random experiment. Journal of Economic Psychology, 33(2), 366-378. https://doi.org/10.1016/j.joep.2011.02.001
Fernandéz-López, S., Otero, L., Vivel, M., & Rodeiro, D. (2010). What are the driving forces of individuals’ retirement savings? Finance a Uver – Czech Journal of Economics & Finance, 60(3), 226-251.
Fredriksson, A., & Moro, A. (2014. Bank–SMEs relationships and banks’ risk-adjusted profitability. Journal of Banking & Finance, 41, 67-77. https://doi.org/10.1016/j.jbankfin.2013.12.026
Grunert, J., Norden, L., & Weber, M. (2005). The role of non-financial factors in internal credit ratings. Journal of Banking & Finance, 29(2), 509-531. https://doi.org/10.1016/j.jbankfin.2004.05.017
Hair, J. F., Anderson, R. E., Babin, B. J., & Black, W. C. (2010). Multivariate data analysis: A global perspective (7th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.
Hancock, G. R., & Mueller, R. O. (Eds.) (2013). Structural equation modeling: A second course, Quantitative methods in education and the behavioral sciences: Issues, research, and teaching. Charlotte NC: Information Age Publishing.
Hung, A., Parker, A. M., & Yoong, J. (2009). Defining and measuring financial literacy. Working paper WR-708, RAND corporation. https://doi.org/10.2139/ssrn.1498674
Irwin, D., & Scott, J. M. (2010). Barriers faced by SMEs in raising bank finance. International Journal of Entrepreneurial Behavior & Research, 16(3), 245-259. https://doi.org/10.1108/13552551011042816
Kozubíkova, L., Belas, J., Bilan, Y., & Bartos, P. (2015). Personality characteristics of entrepreneurs in the context of perception and management of business risks in the SME segment. Economics and Sociology, 8(1), 41-54. https://doi.org/10.14254/2071-789x.2015/8-1/4
Kozubíkova, L., Homolka, L., & Kristalas, D. (2017). The effect of business environment and entrepreneurs’ gender on perception of financial risk in the smes sector. Journal of Competitiveness, 9(1), 36-50. https://doi.org/10.7441/joc.2017.01.03
Kremp, E., & Sevestre, P. (2013). Did the crisis induce credit rationing for French SMEs?. Journal of Banking & Finance, 37(10), 3757-3772. https://doi.org/10.1016/j.jbankfin.2013.05.028
Kundid, A., & Ercegovac, R. (2011). Credit rationing in financial distress: Croatia SMEs’ finance approach. International Journal of Law and Management, 53(1), 62-84. https://doi.org/10.1108/17542431111111890
Lazányi, K. (2014). Entrepreneurs of the future. Serbian Journal of Management, 9(2), 149-158. https://doi.org/10.5937/sjm9-6257
Li, K., Niskanen, J., Kolehmainen, M., & Niskanen, M. (2016). Financial innovation: Credit default hybrid model for SME lending. Expert Systems with Applications, 61, 343-355. https://doi.org/10.1016/j.eswa.2016.05.029
Lusardi, A. (2014). Financial literacy and ignorance: financial literacy highlights of 2014: The PISA data. Retrieved from http://annalusardi.blogspot.sk/search?updated-max=2015-01-10T17:50:00-05:00&max-results=7”max-results=7
Martínez-López, F. J., Gázquez-Abad, J. C., & Sousa, C. M. P. (2013). Structural equation modelling in marketing and business research. European Journal of Marketing, 47(1/2), 115-152. https://doi.org/10.1108/03090561311285484
Mohelska, H., & Sokolova, M. (2016). Smart, connected products change a company’s business strategy orientation. Applied Economics, 48(47), 4502–4509. https://doi.org/10.1080/00036846.2016.1158924
Neuberger, D., & Räthke-Döppner, S. (2014). The role of demographics in small business loan pricing. Small Business Economics, 44(2), 411-424. https://doi.org/10.1007/s11187-014-9602-4
Norris, M., & Lecavalier, L. (2009). Evaluating the use of exploratory factor analysis in developmental disability psychological research. Journal of Autism and Developmental Disorders, 40(1), 8-20. https://doi.org/10.1007/s10803-009-0816-2
Olsson, U. H., Foss, T., Troye, S. V., & Howell, R. D. (2000). The performance of ML, GLS, and WLS estimation in structural equation modeling under conditions of misspecification and nonnormality. Structural Equation Modeling: A Multidisciplinary Journal, 7(4), 557-595. https://doi.org/10.1207/S15328007SEM0704_3
Psillaki, M., & Eleftheriou, K. (2014). Trade credit, bank credit, and flight to quality: Evidence from French SMEs. Journal of Small Business Management, 53(4), 1219-1240. https://doi.org/10.1111/jsbm.12106
Romiti, A., & Rossi, M. (2014). Wealth decumulation, portfolio composition and financial literacy among European elderly (No. 375). Collegio Carlo Alberto.
Rutledge, S. L. (2010). Consumer protection and financial literacy: Lessons from nine country studies. Policy Research working paper (5326). Washington, DC: World Bank. Retrieved from http://documents.worldbank.org/curated/en/676251468233092150/Consumer-protection-and-financial-literacy-lessons-from-nine-country-studies https://doi.org/10.1596/1813-9450-5326
Schreiber, J. B., Nora, A., Stage, F. K., Barlow, E. A., & King, J. (2006). Reporting structural equation modeling and confirmatory factor analysis results: A review. The Journal of Educational Research, 99(6), 323-338. https://doi.org/10.3200/JOER.99.6.323-338
Shah, R., & Goldstein, S. M. (2006). Use of structural equation modeling in operations management research: Looking back and forward. Journal of Operations Management, 24(2), 148-169. https://doi.org/10.1016/j.jom.2005.05.001
Slavec, A. (2014). Bank financing and trade credit use of Slovenian small firms: An empirical examination. Transformations in Business and Economics, 13(2), 91-101.
Sobekova Majkova, M. (2016). The Relationship between the risk of a change of the interest rate and the age of entrepreneurs among Slovak SMEs. Journal of Competitiveness, 8(3), 125-138. https://doi.org/10.7441/joc.2016.03.08
Sokolová, M., Mohelská, H., & Zubr, V. (2016). Pay and offer of benefits as significant determinants of job satisfaction – a case study in the Czech Republic. E+M Ekonomie a Management, 19(1), 108-120. https://doi.org/10.15240/tul/001/2016-1-008
Szovics, P. (2012). Quo vadis finančné vzdelávanie?. Biatec. 20(1). Retrieved from http://www.nbs.sk/sk/publikacie/biatec-odborny-bankovy-casopis/rocnik-2012/biatec-c-1-201
Vos, E., Yeh, A. J.-Y., Carter, S., & Tagg, S. (2007). The happy story of small business financing. Journal of Banking & Finance, 31(9), 2648-2672. https://doi.org/10.1016/j.jbankfin.2006.09.011
Vravec, J. (2014). Analýza úrovne finančnej gramotnosti a finančnej situácie obyvateľov východného Slovenska Derivat, 4. Retrieved from http://www.derivat.sk/index.php?PageID=2346
Wallenburg, C. M., & Weber, J. (2005). Structural equation modelling as a basis for theory development within logistics and supply chain management research. In H. Kotzab, S. Seuring, M. Muller, G. Reiner (Eds.), Research methodologies in supply chain management (pp. 171-186). Heidelberg: Physica. https://doi.org/10.1007/3-7908-1636-1_12
Wang, Y. (2016). What are the biggest obstacles to growth of SMEs in developing countries? – An empirical evidence from an enterprise survey. Borsa Istanbul Review, 16(3), 167-176. https://doi.org/10.1016/j.bir.2016.06.001
Wit, E., Heuvel, E. van den, & Romeijn, J. W. (2012). “All models are wrong...”: An introduction to model uncertainty. Statistica Neerlandica, 66(3), 217-236. https://doi.org/10.1111/j.1467-9574.2012.00530.x
Yahaya, S. N., Mansor, N., & Bakar, M. H. (2016). Credit risk model: The conceptual framework of SME financing. International Journal of Research and Reviews in Applied Sciences, 26(2). Retrieved from www.arpapress.com/Volumes/Vol26Issue3/IJRRAS_26_3_02.pdf
Beck, T., Degryse, H., De Haas, R., & Van Horen, N. (2015). When arm’s length is too far: Relationship banking over the credit cycle. Systematic Risk Centre. Discussion Paper No 33.
Beck, T., & Demirguc-Kunt, A. (2006). Small and medium-size enterprises: Access to finance as a growth constraint. Journal of Banking & Finance, 30(11), 2931-2943. https://doi.org/10.1016/j.jbankfin.2006.05.009
Berger, A. N., & Udell, G. F. (2006). A more complete conceptual framework for SME finance. Journal of Banking & Finance, 30(11), 2945-2966. https://doi.org/10.1016/j.jbankfin.2006.05.008
Bruns, V., & Fletcher, M. (2008). Banks’ risk assessment of Swedish SMEs. Venture Capital, 10(2), 171-194. https://doi.org/10.1080/13691060801946089
Corazza, M., Funari, S., & Gusso, R. (2016). Creditworthiness evaluation of Italian SMEs at the beginning of the 2007–2008 crisis: An MCDA approach. The North American Journal of Economics and Finance, 38, 1-26. https://doi.org/10.1016/j.najef.2016.05.008
Dierkes, M., Erner, C., Langer, T., & Norden, L. (2013). Business credit information sharing and default risk of private firms. Journal of Banking & Finance, 37(8), 2867-2878. https://doi.org/10.1016/j.jbankfin.2013.03.018
Eggers, F., Kraus, S., Hughes, M., Laraway, S., & Snycerski, S. (2013). Implications of customer and entrepreneurial orientations for SME growth. Management Decision, 51(3), 524-546. https://doi.org/10.1108/00251741311309643
Eisinga, R., Grotenhuis, M., & Pelzer, B. (2012). The reliability of a two-item scale: Pearson, Cronbach, or Spearman-Brown? International Journal of Public Health, 58(4), 637-642. https://doi.org/10.1007/s00038-012-0416-3
European Commission. (2016). SME Performance Review 2015/2016. Retrieved from http://ec.europa.eu/growth/smes/business-friendly-environment/performance-review-2016_en#annual-report
European Union. (2016). SBA Fact Sheet, European Commission Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs. Brussels.
Fairlie, R. W., & Holleran, W. (2012). Entrepreneurship training, risk aversion and other personality traits: Evidence from a random experiment. Journal of Economic Psychology, 33(2), 366-378. https://doi.org/10.1016/j.joep.2011.02.001
Fernandéz-López, S., Otero, L., Vivel, M., & Rodeiro, D. (2010). What are the driving forces of individuals’ retirement savings? Finance a Uver – Czech Journal of Economics & Finance, 60(3), 226-251.
Fredriksson, A., & Moro, A. (2014. Bank–SMEs relationships and banks’ risk-adjusted profitability. Journal of Banking & Finance, 41, 67-77. https://doi.org/10.1016/j.jbankfin.2013.12.026
Grunert, J., Norden, L., & Weber, M. (2005). The role of non-financial factors in internal credit ratings. Journal of Banking & Finance, 29(2), 509-531. https://doi.org/10.1016/j.jbankfin.2004.05.017
Hair, J. F., Anderson, R. E., Babin, B. J., & Black, W. C. (2010). Multivariate data analysis: A global perspective (7th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.
Hancock, G. R., & Mueller, R. O. (Eds.) (2013). Structural equation modeling: A second course, Quantitative methods in education and the behavioral sciences: Issues, research, and teaching. Charlotte NC: Information Age Publishing.
Hung, A., Parker, A. M., & Yoong, J. (2009). Defining and measuring financial literacy. Working paper WR-708, RAND corporation. https://doi.org/10.2139/ssrn.1498674
Irwin, D., & Scott, J. M. (2010). Barriers faced by SMEs in raising bank finance. International Journal of Entrepreneurial Behavior & Research, 16(3), 245-259. https://doi.org/10.1108/13552551011042816
Kozubíkova, L., Belas, J., Bilan, Y., & Bartos, P. (2015). Personality characteristics of entrepreneurs in the context of perception and management of business risks in the SME segment. Economics and Sociology, 8(1), 41-54. https://doi.org/10.14254/2071-789x.2015/8-1/4
Kozubíkova, L., Homolka, L., & Kristalas, D. (2017). The effect of business environment and entrepreneurs’ gender on perception of financial risk in the smes sector. Journal of Competitiveness, 9(1), 36-50. https://doi.org/10.7441/joc.2017.01.03
Kremp, E., & Sevestre, P. (2013). Did the crisis induce credit rationing for French SMEs?. Journal of Banking & Finance, 37(10), 3757-3772. https://doi.org/10.1016/j.jbankfin.2013.05.028
Kundid, A., & Ercegovac, R. (2011). Credit rationing in financial distress: Croatia SMEs’ finance approach. International Journal of Law and Management, 53(1), 62-84. https://doi.org/10.1108/17542431111111890
Lazányi, K. (2014). Entrepreneurs of the future. Serbian Journal of Management, 9(2), 149-158. https://doi.org/10.5937/sjm9-6257
Li, K., Niskanen, J., Kolehmainen, M., & Niskanen, M. (2016). Financial innovation: Credit default hybrid model for SME lending. Expert Systems with Applications, 61, 343-355. https://doi.org/10.1016/j.eswa.2016.05.029
Lusardi, A. (2014). Financial literacy and ignorance: financial literacy highlights of 2014: The PISA data. Retrieved from http://annalusardi.blogspot.sk/search?updated-max=2015-01-10T17:50:00-05:00&max-results=7”max-results=7
Martínez-López, F. J., Gázquez-Abad, J. C., & Sousa, C. M. P. (2013). Structural equation modelling in marketing and business research. European Journal of Marketing, 47(1/2), 115-152. https://doi.org/10.1108/03090561311285484
Mohelska, H., & Sokolova, M. (2016). Smart, connected products change a company’s business strategy orientation. Applied Economics, 48(47), 4502–4509. https://doi.org/10.1080/00036846.2016.1158924
Neuberger, D., & Räthke-Döppner, S. (2014). The role of demographics in small business loan pricing. Small Business Economics, 44(2), 411-424. https://doi.org/10.1007/s11187-014-9602-4
Norris, M., & Lecavalier, L. (2009). Evaluating the use of exploratory factor analysis in developmental disability psychological research. Journal of Autism and Developmental Disorders, 40(1), 8-20. https://doi.org/10.1007/s10803-009-0816-2
Olsson, U. H., Foss, T., Troye, S. V., & Howell, R. D. (2000). The performance of ML, GLS, and WLS estimation in structural equation modeling under conditions of misspecification and nonnormality. Structural Equation Modeling: A Multidisciplinary Journal, 7(4), 557-595. https://doi.org/10.1207/S15328007SEM0704_3
Psillaki, M., & Eleftheriou, K. (2014). Trade credit, bank credit, and flight to quality: Evidence from French SMEs. Journal of Small Business Management, 53(4), 1219-1240. https://doi.org/10.1111/jsbm.12106
Romiti, A., & Rossi, M. (2014). Wealth decumulation, portfolio composition and financial literacy among European elderly (No. 375). Collegio Carlo Alberto.
Rutledge, S. L. (2010). Consumer protection and financial literacy: Lessons from nine country studies. Policy Research working paper (5326). Washington, DC: World Bank. Retrieved from http://documents.worldbank.org/curated/en/676251468233092150/Consumer-protection-and-financial-literacy-lessons-from-nine-country-studies https://doi.org/10.1596/1813-9450-5326
Schreiber, J. B., Nora, A., Stage, F. K., Barlow, E. A., & King, J. (2006). Reporting structural equation modeling and confirmatory factor analysis results: A review. The Journal of Educational Research, 99(6), 323-338. https://doi.org/10.3200/JOER.99.6.323-338
Shah, R., & Goldstein, S. M. (2006). Use of structural equation modeling in operations management research: Looking back and forward. Journal of Operations Management, 24(2), 148-169. https://doi.org/10.1016/j.jom.2005.05.001
Slavec, A. (2014). Bank financing and trade credit use of Slovenian small firms: An empirical examination. Transformations in Business and Economics, 13(2), 91-101.
Sobekova Majkova, M. (2016). The Relationship between the risk of a change of the interest rate and the age of entrepreneurs among Slovak SMEs. Journal of Competitiveness, 8(3), 125-138. https://doi.org/10.7441/joc.2016.03.08
Sokolová, M., Mohelská, H., & Zubr, V. (2016). Pay and offer of benefits as significant determinants of job satisfaction – a case study in the Czech Republic. E+M Ekonomie a Management, 19(1), 108-120. https://doi.org/10.15240/tul/001/2016-1-008
Szovics, P. (2012). Quo vadis finančné vzdelávanie?. Biatec. 20(1). Retrieved from http://www.nbs.sk/sk/publikacie/biatec-odborny-bankovy-casopis/rocnik-2012/biatec-c-1-201
Vos, E., Yeh, A. J.-Y., Carter, S., & Tagg, S. (2007). The happy story of small business financing. Journal of Banking & Finance, 31(9), 2648-2672. https://doi.org/10.1016/j.jbankfin.2006.09.011
Vravec, J. (2014). Analýza úrovne finančnej gramotnosti a finančnej situácie obyvateľov východného Slovenska Derivat, 4. Retrieved from http://www.derivat.sk/index.php?PageID=2346
Wallenburg, C. M., & Weber, J. (2005). Structural equation modelling as a basis for theory development within logistics and supply chain management research. In H. Kotzab, S. Seuring, M. Muller, G. Reiner (Eds.), Research methodologies in supply chain management (pp. 171-186). Heidelberg: Physica. https://doi.org/10.1007/3-7908-1636-1_12
Wang, Y. (2016). What are the biggest obstacles to growth of SMEs in developing countries? – An empirical evidence from an enterprise survey. Borsa Istanbul Review, 16(3), 167-176. https://doi.org/10.1016/j.bir.2016.06.001
Wit, E., Heuvel, E. van den, & Romeijn, J. W. (2012). “All models are wrong...”: An introduction to model uncertainty. Statistica Neerlandica, 66(3), 217-236. https://doi.org/10.1111/j.1467-9574.2012.00530.x
Yahaya, S. N., Mansor, N., & Bakar, M. H. (2016). Credit risk model: The conceptual framework of SME financing. International Journal of Research and Reviews in Applied Sciences, 26(2). Retrieved from www.arpapress.com/Volumes/Vol26Issue3/IJRRAS_26_3_02.pdf