External accountant links, portfolio risk and SME failure prediction: evidence from Norwegian registry data

What is it about?

External-accountant information can improve prediction of SME bankruptcy. Accountant portfolios with higher residual risk also show some persistence over time, but the evidence does not identify contagion, accountant quality or causal effects. The findings are most relevant for capacity-constrained, human-led monitoring by banks and supervisors.

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Photo by Melinda Gimpel on Unsplash

Photo by Melinda Gimpel on Unsplash

Why is it important?

If bankruptcy risk is partly concentrated in accountant portfolios, information about the external accountant gives banks and supervisors an additional signal for deciding where scarce human attention should go. That matters because SME monitoring is capacity-constrained: not every firm can receive intensive review.

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