No. If a company's size provides access to capital which allows them to reach greater financial success, the FHR will accurately reflect this.
Typically, you will see that larger companies with "bigger" brand names tout access to large credit lines due to their size and reliability i.e. unused but potential liquidity. The key question here is whether or not the FHR score should provide some sort of credit for this unused but potential liquidity.
This is essentially a claim that a larger firm is "safer" than smaller firms, since they have access to readily available capital with relative ease (due to their size).
Using the same sample set as that in our default study (~1,420 companies), we divided the sample into two halves and carried out an analysis:
- "Large": firms with total assets greater than $200MM USD at default (~650 firms)
- "Small": firms with total assets less than $200MM USD at default (~770 firms)
The findings shown very strong efficacy results for both large and small firms, with a negligible difference in performance of the model between the two samples.
Simply put, the default distribution was exactly the same for large firms as for small, indicating that size does not introduce any performance bias in the FHR model