Abstract
Small and medium-sized enterprises (SMEs) are currently considered an important driving force of economic growth. Several studies have been developed to analyse this issue and, in particular, to assess the credit risk of SMEs. Most of these applications, however, share the same methodological limitations, such as the manner by which criteria are selected, or the methods used for calculating the weights between them. Based on the integrated use of cognitive mapping techniques and the Interactive Multiple Criteria Decision Making (TODIM) approach, this study aims to create an idiosyncratic decision support system for the identification of multiple criteria and the calculation of their respective weights (i.e. the trade-offs) in the evaluation of SME credit risk. The results show that the model created in this study allows for simple and straightforward credit concession decisions, facilitating the evaluation of SME credit applications through more informed and transparent risk assessments. Practical implications, strengths and weaknesses of the proposed framework are analysed and discussed.
Highlights
The effects of the most recent financial crisis have been wide reaching
Wang et al 2011), the combined use of cognitive mapping with multiple criteria decision analysis (MCDA) tools emerges as a plausible alternative
The results of the present study indicate that multi-criteria methodologies hold great potential for the development of robust, transparent and realistic valuation models
Summary
The effects of the most recent financial crisis have been wide reaching. Even the world’s most developed economies, especially those in the European Union (EU), were quickly impacted by the downturn and struggled to come up with answers to minimize its effects. This means the analysis of this risk can be swayed to the point where there is an impact on whether or not credit is granted Given these limitations, and because there is no one overall superior technique for building credit scoring models (cf Wang et al 2011), the combined use of cognitive mapping with multiple criteria decision analysis (MCDA) tools emerges as a plausible alternative. TODIM (the Portuguese acronym for Interactive and Multicriteria Decision Making) was chosen due to its proven track record in similar studies on risk analysis (Rangel, Gomes 2007; Gomes, Rangel 2009; Pereira et al 2013), and because of the technique’s fit with the constructivist approach adopted in this research Together, these procedures should allow for a more complete definition of evaluation criteria, as well as for the calculation of the trade-offs between them.
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