Development of a bank model for the analysis of firm-specific internationalization risk

The share of world trade of world GDP is growing. More research is therefore needed on international lending risks. This project focuses the risks in lending to corporate client firms that do international business. The project will be applied in Sweden, since its international trade accounts for around half of its GDP. 

Banks’ firm risk assessment in lending has traditionally focused on aggregate portfolio models, but now increasingly focuses on firm-specific factors, such as the firm’s cash flow. Due to the growing importance of international business in the world economy, there is a need to develop a model for the assessment of firm-specific internationalization risk.

This project applies internationalization process theory to develop a model that banks can use to assess firm-specific internationalization risk. We identify factors emanating from the internationalization process theory, which is the most cited theory in international business. We apply the theory in a model for banks’ risk assessment of internationalizing corporate clients.

The empirical database will be a combination of a questionnaire to internationalizing companies, and objective archival data on internationalization and accounting measures.

The project contributes to an increased understanding of the risks of internationalization, and adds to the credit assessment models that banks have at their disposal.