Investigating Revenue Smoothing Thresholds That Affect Bank Credit Scoring Models: An Iranian Bank Case Study

Sadatrasoul, Seyed Mahdi; Ebadati, Omid Mahdi; Amirzadeh Irani, Amir

doi:10.22044/jadm.2023.11982.2346

Document Type : Original/Review Paper

Authors

Information Technology Management department, Management school, Kharazmi, Tehran, Iran.

https://doi.org/10.22044/jadm.2023.11982.2346

Abstract

Companies have different considerations for using smoothing in their financial statements, including annual general meeting, auditing, Regulatory and Supervisory institutions and shareholders requirements. Smoothing is done based on the various possible and feasible choices in identifying company’s incomes, costs, expenses, assets and liabilities. Smoothing can affect credit scoring models reliability, it can cause to providing/not providing facilities to a non-worthy/worthy organization orderly, which are both known as decision errors and are reported as “type I” and “type II” errors, which are very important for Banks Loan portfolio. This paper investigates this issue for the first time in credit scoring studies on the authors knowledge and searches. The data of companies associated with a major Asian Bank are first applied using logistic regression. Different smoothing scenarios are tested, using wilcoxon statistic indicated that traditional credit scoring models have significant errors when smoothing procedures have more than 20% change in adjusting company’s financial statements and balance sheets parameters.

Keywords

20.1001.1.23225211.2023.11.1.11.6

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Investigating Revenue Smoothing Thresholds That Affect Bank Credit Scoring Models: An Iranian Bank Case Study

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Volume 11, Issue 1January 2023Pages 131-148

Volume 11, Issue 1
January 2023
Pages 131-148