Reconsidering Corporate Ratings

Bertrand Hassani and Xin Zhao

Economic Notes, 2015, vol. 44, issue 2, 177-209

Abstract: type="main" xml:lang="en">

In this paper, a new corporate ratings methodology is proposed. The information from the annually accounting ratios and the daily credit derivative spreads are combined through a two-steps approach to calibrate the credit risk of the corporations. To test the performance of the proposed rating methodology, an empirical analysis is carried out on a sample of 197 public traded corporations with credit ratings from the big-three credit rating agencies. The ratings generated from the presented approach perform better than the ratings from the external agencies as it is more representative of companies’ credit quality over time. This rating method provides an approach to integrate the long term and short term information of corporate credibility.

Date: 2015
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