Association Between Financial Efficiency and Credit Risk of SMEs—A Study Using DEA and Altman Z-score.

This article examines the financial efficiency and credit risk of small and medium enterprises (SMEs) listed on Indian stock exchanges from 2016 to 2020, using the Altman Z-score model to predict bankruptcy risk and Data Envelopment Analysis (DEA) with a slack-based measure (SBM) to assess financial efficiency. The study finds a low association between credit risk and financial efficiency, indicating that SMEs classified as financially safe by the Altman Z-score are not necessarily efficient in resource utilization according to DEA, and vice versa. The findings suggest that financial institutions should consider both credit risk and efficiency measures independently when granting credit, as low financial efficiency does not always imply high bankruptcy risk. This research contributes to the limited literature on the relationship between credit risk and financial efficiency in Indian SMEs and offers implications for credit management and policy formulation.