Department of Banking and Financial Management University of Piraeus
Academic Seminar Series
Thursday, June 15th, 2023 / Time: 16:15 – 17:45,
Senate Room (Αίθουσα Συγκλήτου 4ος όροφος)
Automated credit scoring: Private firms’ response and economic consequences
Católica Lisbon School of Business and Economics
We investigate how the increasing use of automated model-based credit scores and the inevitable devaluation of private information channels affect private firms’ earnings management choices. Our analysis shows that credit-scoring algorithms may not be as sophisticated as expected since they do not recognize the impact managerial accounting choices have on the reported numbers. Consequently, some firms improve their credit score and raise more debt through the use of accrual management. In particular, our analysis suggests that firms exhibit a pecking order with respect to which accruals they choose to manage. They first opt for non-tax affecting revaluation of non-current assets, and only if this does not result in the desired outcome, do they then manage their tax-affecting working capital accruals upwards. We further find that firms resorting to abnormal revaluations to improve their credit score are able to obtain additional debt but subsequently are unable to serve this new debt and are more likely to end up in bankruptcy.
Fani Kalogirou is an Assistant Professor of Accounting and Finance in Católica Lisbon School of Business and Economics. She holds a Ph.D. in Accounting and Finance from Lancaster University and before joining Católica-Lisbon held research positions at Saïd Business School University of Oxford, Exeter Business School, the KPMG Financial Reporting Centre in ESSEC Business School and INTACCT research project – Lancaster University. Her research focuses on the role of accounting regulation, analysts, and other stakeholders in improving the efficiency of capital markets. She is a fellow of the HE Academy and has 15 years of teaching experience on a variety of topics, degree levels, and academic institutions.