The purpose of this study is to construct a general credit-limit algorithm that is consistent with the firm's goal of wealth maximization under funds constraints. Specifically, the net present value (NPV) technique is employed to build a foundation for the model because its acceptability is well established in capital budgeting theory. While it is not a novel approach in receivables management, it is rarely used to specify credit-limits. Yet, the application of NPV in the derivation of a credit-limit algorithm is conducive to satisfying the requisite that credit-limit decisions and accept/reject decisions are concurrent credit-granting considerations. Moreover, by incorporating mathematical programming procedures, funds limitations can be considered to ensure the resources of the firm are not incorrectly invested in receivables "loans". Therefore, it is a fundamental contention that the credit-granting decision must be approached not only on the basis of individual accounts, but also from the standpoint of receivables in aggregate. / To operationalize the credit-limit model, a default-probability model is developed. The "minimum chi-square rule" is employed because it assures the quality of minimizing misclassifications. Further, this procedure is consistent with the three characteristics which are important to the derivation of a practicable credit-limit algorithm; namely, (1) theoretical consistency, for interpretive rationale, (2) parsimony, for ease of understanding, and (3) practicability, for the possibility of future application. / An integral part of the dissertation is a survey of current credit-limit practices, which provides an update to existing literature. The general findings suggest that credit-limits represent a device utilized by lending firms to control exposure to the risks associated with extending credit. But the actual techniques used to establish the limits are quite subjective. This implies the more theoretically sound and sophisticated methods proposed in the academic literature are not employed in the real world. / Source: Dissertation Abstracts International, Volume: 45-09, Section: A, page: 2948. / Thesis (D.B.A.)--The Florida State University, 1984.
| Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_75370 |
| Contributors | BESLEY, SCOTT., Florida State University |
| Source Sets | Florida State University |
| Detected Language | English |
| Type | Text |
| Format | 322 p. |
| Rights | On campus use only. |
| Relation | Dissertation Abstracts International |
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