Source: Ca’ Foscari University Campus in Treviso staff
Mantovani, Guido Max
Adjunct Professor in Corporate Finance
Ca' Foscari University in Venice – Department of Management
Guest Professor EM Strasbourg - Business School
The project "Integrated Rating " comes from a long collaboration between Ca’ Foscari University Campus in Treviso and Treviso Chamber of Commerce.
Project started in 2004 with the monitoring of the performances of Treviso’s enterprises and collaboration continued until 2008.
With the financial crisis the problem of constraints to firms’ loans emerged , especially for small firms. Hence the two partners decided to invest in a new project which could develop an innovative rating model.
Integrated Rating project aims to develop a method of assessing the credit worthiness of companies that do not base its evaluation on firms’ credit tendencies but on balance sheet assets.
The aim is to produce a synthetic index of the earning capacity of the companies that takes into account the investment choices and the risks that characterize the enterprise.
The approach seeks to identify a methodology that overcomes the characters of pro-cyclicality embedded in the system of rules imposed by Basel 2, and partially still present in Basel 3. Such a methodology is proposed as a complementary procedure to Basel regulation for the evaluation of the companies’ creditworthiness.
The project also aims to build a model able to consider businesses not only as individual and isolated legal entities but also in relation to a possible network of economic or productive relations, both extremely relevant in the credit merit evaluation.
Hence, the methodology focuses and explores different dimensions in bank-firm relationship: the determination of firms’ profitability and risk; the investigation of financing and investment choices in companies; the identification of firms productive networks and roles of each company within them.
Results reached are interesting. For a sample of approximately 5,000 manufacture companies in the Tri- Veneto area, researchers estimate that 47 companies out of 100 receive more credit than the average, while on the basis of merit, 52 companies out of 100 are creditworthy.
But 47 companies overlapping with the 52 is minimal! In fact, combining data of credit allocation and merit of credit, it results that only 26 companies present a positive rating while 27 not.
This means that 20 companies receive credit without merit, representing a potential suffering for the banking system; while 26 companies do not receive the deserved credit, thus constituting a positive gap in growth of the productive system!
Furthermore, the Basel regulation adopted so far by the banking system do not appear to properly consider the relationship between firms returns and risks. All these results shown that there is significant space for efficient re-allocation of financial resources and economic system restart.
Methods and results of the Integrated Rating model received awards and appreciation by international academics and it is desired that both firms and banks will benefit from it, in order to enhance risks awareness and their correct measurement.
Papers available at www.ssrn.com
Mestroni, Mattia and Basilico, Elisabetta and Mantovani, Guido Max, 'Corporate Finance…What Else?' The Case of the Production Chain Networks in North-East Italy and the Scaffolding Finance Adopted by Their 'Leader' (December 12, 2013). Available at SSRN:http://ssrn.com/abstract=2366723
Mantovani, Guido Max and Mestroni, Mattia and Basilico, Elisabetta, What is Worth More for the Merit of Credit? Evidence from the Credit System in the North Eastern Italian District. (February 16, 2014). Available at SSRN: http://ssrn.com/abstract=2385466
Mantovani, Guido Max and Corò, Giancarlo and Gurisatti, Paolo and Mestroni, Mattia,Integrating Industrial and Financial Analysis into a Rating Methodology for Corporate Risk Detection: The Case of the Vicenza Manufacturing Firms (February 23, 2014). Available at SSRN:
Basilico, Elisabetta and Mestroni, Mattia and Mantovani, Guido Max, The Relation between Corporate Governance, Firm Performance and the Merit of Credit in SMEs (March 1, 2014). Available at SSRN: http://ssrn.com/abstract=2403166
Basilico, Elisabetta and Mantovani, Guido Max and Mestroni, Mattia, Corporate Governance, Performance and Firm Characteristics of Productive Chain Networks in Entrepreneurial Smes in North-East Italy. (April 28, 2014). Available at SSRN: http://ssrn.com/abstract=2430218