Credit Scoring for Farm Businesses : Evaluating the KMV Model using Farm-level Accounting Data

The objective of this study is to provide a detailed examination of the KMV model in estimating credit risk using farm-level accounting data. The examination includes an evaluation of the assumptions and comparisons to well accepted experience-based models. For the test of the argument, the null hypothesis is that the classifications of the KMV model are the same as those of the experience model. Data from the Illinois Farm Business Farm Management (FBFM) association are used. Chi-squared statistics are used for testing this hypothesis. The validation tests of the assumptions and results of the empirical analysis suggest that KMV model may not be an appropriate statistical model for classification for farm businesses when accounting data are used.