Are Credit Scoring Models Sensitive With Respect to Default Definitions?
Evidence from the Austrian Marketby Evelyn Hayden of the University of Vienna February 2003 Abstract: In this paper models of default prediction conditional on financial statements of Austrian firms are presented. Apart from giving a discussion on the suggested 65 variables the issue of potential problems in developing rating models is raised and possible solutions are reviewed. A unique data set on credit risk analysis for the Austrian market is constructed and used to derive rating models for three different default definitions, i.e. bankruptcy, restructuring, and delay-in-payment. The models are compared to examine whether the models developed on the tighter default criteria, that are closer to the definition proposed by Basel II, do better in predicting these credit loss events than the model estimated on the traditional and more easily observable default criterion bankruptcy. Several traditional methods to compare rating models are used, but also a rigorous statistical test is dis
