Predicting small and medium enterprises default risk. Do regional models make sense?

The paper aims to gain a better understanding of the regional SME default risk model. In this research, we try to answer whether regional models for SME are better at estimating default risk than nationalbased models as well as whether regional models estimation even make sense. The analysis presents five industry-specific models based on regional companies in Tuscany using the Basel II definition of default. Results show that the regional research approach can improve the model’s accuracy and is a better predictor of default due to local specificity variables. The paper then addresses whether regional models achieves higher accuracy due to their use of industry-specific variables. Although some of these aspects are not new in academic literature, the regional approach presented in this paper will contribute to widen this field of research in default risk estimation.