This research evaluates the usefulness of financial statement ratios after general price level adjustments and quadratic multiple discriminant analysis of the ratios to an a posteriori discrimination of small business borrowers according to their known loan outcomes, then applies of the results to an ex ante prediction experiment of borrowers in a future time zone with increased inflation. A longitudinal study of direct intermediate-term borrowers at the Small Business Administration (SBA) offices in Colorado and Idaho from 1964 to 1979 is presented, focusing on the outcomes of the individual loans, defined as either repaid or defaulted. The incidence of default is identified with the initiation of action by the SBA to recover money. (Copyright (c) Vincent O'Rourke, Jr. 1982.)
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