Credit Rating and Bank-Firm Relationships

Michele Modina is Associate Professor of Economics and Business Management at the University of Molise, Italy, where he holds courses in 'Entrepreneurship and Small Business' and 'Corporate Finance' under the Degree course in 'Entrepreneurship and Innovation'. His research activity focuses on the value creation in manufacturing and financial companies; the effects of Basel 2 on bank-firm relationship and the role of corporate finance; the management of the investment and financing techniques; and the quality of financial and banking services for SMEs.

Introduction PART I. CREDIT RATING AND INTERNAL RATING SYSTEMS 1. Credit Rating 1.1. The distinctive features of credit rating 1.2. Literature review 1.3. Classification and key concepts of credit risk 2. Credit Risk Management 2.1. Credit Risk Management and Internal Rating Based (IRB) approach 2.2. The approaches for the credit rating assignment 2.2.1. The statistical approach 2.2.2. The judgmental approach 2.3. Introduction of the IRB methods 2.3.1 Characteristics of internal rating systems 2.3.2 Determination of the risk parameters 2.3.3 Requirements of the IRB methods 2.4. The innovations introduced by Basel III 3. Internal Rating Systems: a critical vision 3.1. Strengths and weaknesses of IRS 3.2. Rating and the economic cycle 3.2.1. Alternatives for dealing with rating during the credit cycle 3.2.2. Stressed PD 3.2.3. Unstressed PD 3.2.4. Rating and company analysis: the 'hybrid' approach 3.2.5. Implementation of 'hybrid' models 3.3. Potentiality and criticality of internal rating systems PART II. TOWARDS A NEW ARCHITECTURE OF RATING 4. The generation of new models 4.1 The need to review rating models 4.2 A multistage path 4.3 The new generation of rating models 5. Rating systems: a dual track for screening and monitoring 5.1. Reasons for the dual track 5.2. Operational procedures: some evidence from banking groups 5.2.1. Screening 5.2.2. Monitoring 6. The new architecture of rating model 6.1. The archetype of the new architecture 6.2. A new rating model 109 6.3. The function of the rating mod 6.4. The monitoring model PART III. CREDIT RATING IN AN EVOLVING SCENARIO 7. Rating and bank-firm relationship 7.1. The strategic interaction between bank and firm 7.2. The bank 7.3. The firm 8. Rating and corporate finance: implications and opportunities 8.1. Rating and financial management in a changing world 8.2. Financing behaviour of SMEs 8.3. Rating, capital structure and the creation of value 8.4. The repercussions of rating on financing decisions 9. Rating and bankruptcy prediction 9.1 Rating and SMEs funding policy 9.2. Contribution to the literature 9.2.1. Determinants of firm default 9.2.2. SMEs credit rating studies 9.3. An empirical analysis 9.4. Toward a new frontier References