ESTIMATION OF CREDIT RISK AND QUALITY OF ACCOUNTING INFORMATION IN ALGERIA

Abstract

When analyzing credit risk, Algerian banks face a problem of accounting information quality of private firms. From the point of view of credit risk models, and on the basis of a sample of 118 credits from an Algerian bank, we show that, just like advanced countries, debt and cash ratios discriminate relatively well between healthy and defaulted firms. On the contrary, none of the usual profitability indicators is statistically significant, a situation which we attribute to the extent of the informal economy as well as to the practice of earnings management. However, the stability of positive earning turns out to be significant, which can validate the hypothesis that healthy firms signal their type. In addition, information from sources external to the firm, like entrusted turnover and fiscal and social contributions situation, improves risk estimation, reflecting the banks' response to information asymmetry.