Credit risk evaluation in the small business activity : individual aspects at the macroeconomic level

Murzacheva, Ekaterina: Credit risk evaluation in the small business activity : individual aspects at the macroeconomic level. Proceedings of the Challenges for Analysis of the Economy, the Businesses, and Social Progress : International Scientific Conference Szeged, November 19-21, 2009. pp. 225-248. (2010)

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Abstract

The key area of the controversy among researchers is the potential impact of the small business activity on the national economic growth. The background of such a prerequisite lies in the Schumpeterian hypothesis, which marks out the role of an entrepreneur as an inevitable element for the technological innovation. In this way the growing Gross Domestic Product (GDP) is fungible with the progress and well-being improvement. However, last events showed that high growth rates and favourable competitiveness indicators were not the cure for the financial distress in the era of globalization. Following this idea, one should take the role of the small business activity into consideration not only with respect to its potential growth input, but also as a possible «economic cushion» that mitigates the overall risk in the economy. Such a view on the problem is hugely exacerbated especially during the periods of economic downturn. With this in mind the main objective of the paper is to identify basic risk factors perceived by small businesses, which impede the early entrepreneurial development as well as to draw a line between risk perception by entrepreneurs and economic progress. Additionally, the focus is intended to provide a rationale for a leading indicator construction, which is able to anticipate possible economic downturn. This issue is based on the assumption that early entrepreneurial activity is the most susceptible to the economic fluctuations structure. The scope of the research is confined to the early business activity and the financing problem in particular. The opportunity to attract financial funds enables an entrepreneur to put the business into action, thus drawing the line between bright idea and the first material step towards its realization. Among various dimensions of small business support the financial issue is the most challenging and urgent component of every start-up. To shed more light on the subject of the small business financing and its impact on the socioeconomic development of a country, one should take a structured approach: Firstly, it is necessary to drill down into the background of the assumption that the small business activity fosters the GDP growth. Moreover it is important to bring on the surface the explanation of the relationship between the financing source and the level of entrepreneurial activity in the country. Secondly, as far as the financial issue is concerned, it is crucial to identify risk factors which rein back or, conversely, put forward the actions of an entrepreneur. The counterpart of this process is the investor’s outlook whether to sponsor small business or not, which also stems from the observed risk environment. Thirdly, after economic risk factors are cleared out the analysis of the revealed risk factors – their likelihoods and consequences should be applied. Additionally, with the help of estimation and evaluation techniques the risks need to be ranged according to their significance on the national level, forming an indicator of the possible economic downturn. Lastly, in order to achieve the stated goal and to condense the information into a single number it is essential to combine the revealed indicators into a complex index. The sense of this result is to absorb both internal characteristics (i.e. motivation, company profile) of small business units, given their perception of economic risks, and external environment with its overall risk concentration. In this way, evolution of the idea to regard the small business activity as an analytical tool for the risk determination in the economy is developed in the research background section. Subsequently, two approaches are suggested in the paper. The theoretical foundation is presented in the form of structural models in order to provide an economic reasoning for the proposed views. The empirical evidence is outlined in the second part of the paper based on the statistical models’ results.

Item Type: Article
Journal or Publication Title: Proceedings of the Challenges for Analysis of the Economy, the Businesses, and Social Progress : International Scientific Conference Szeged, November 19-21, 2009
Date: 2010
Page Range: pp. 225-248
ISBN: 978-963-06-9558-9
Uncontrolled Keywords: Kockázat - hitelügy
Additional Information: Bibliogr.: p. 247-248. ; összefoglalás angol nyelven
Date Deposited: 2019. Apr. 24. 12:05
Last Modified: 2019. Apr. 24. 12:05
URI: http://acta.bibl.u-szeged.hu/id/eprint/57803

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