Back to Search
Start Over
Predicting corporate credit risk: Network contagion via trade credit
- Source :
- PLoS ONE, Vol 16, Iss 4, p e0250115 (2021), PLoS ONE
- Publication Year :
- 2021
- Publisher :
- Public Library of Science (PLoS), 2021.
-
Abstract
- Trade credit is a payment extension granted by a selling firm to its customer. Companies typically respond to late payments from their customers by delaying payments to suppliers, thus generating a ripple through the transaction network. Therefore, trade credit is as a potential vehicle of propagation of losses in case of default events. The goal of this work is to leverage information on the trade credit among connected firms to predict imminent defaults of firms. We use a unique dataset of client firms of a major Italian bank to investigate firm bankruptcy between October 2016 to March 2018. We develop a model to capture network spillover effects originating from the supply chain on the probability of default of each firm via a sequential approach: the output of a first model component on single firm features is used in a subsequent model which captures network spillovers. While the first component is the standard econometrics way to predict such dynamics, the network module represents an innovative way to look into the effect of trade credit on default probability. This module looks at the transaction network of the firm, as inferred from the payments transiting via the bank, in order to identify the trade partners of the firm. By using several features extracted from the network of transactions, this model is able to predict a large fraction of the defaults, thus showing the value hidden in the network information. Finally, we merge firm and network features with a machine learning model to create a ‘hybrid’ model, which improves the recall for the task by almost 20 percentage points over the baseline.
- Subjects :
- European People
Financial Management
Economics
Bankruptcy
Commerce
Forecasting
Humans
Machine Learning
Models, Economic
Probability
Professional Corporations
Social Sciences
Mathematical and Statistical Techniques
Models
Ethnicities
Payment
050207 economics
media_common
050208 finance
Multidisciplinary
Statistics
05 social sciences
Italian People
Probability of default
Physical Sciences
Medicine
Default
Network Analysis
Research Article
Computer and Information Sciences
Leverage (finance)
Science
media_common.quotation_subject
Supply chain
Economic
Research and Analysis Methods
Microeconomics
Trade credit
Artificial Intelligence
0502 economics and business
credit risk, spatial models, network contagion
Statistical Methods
Public Finance
People and Places
Money Supply and Banking
Population Groupings
Business
Database transaction
Finance
Mathematics
Credit risk
Subjects
Details
- ISSN :
- 19326203
- Volume :
- 16
- Database :
- OpenAIRE
- Journal :
- PLOS ONE
- Accession number :
- edsair.doi.dedup.....3b690708418adc1a48c5ce027607c89a