Rating: New Approach

Peter Brusov, Tatiana Filatova and Natali Orekhova
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Tatiana Filatova: Financial University under the Government of Russian Federation
Natali Orekhova: Financial University under the Government of Russian Federation

Chapter Chapter 28 in The Brusov–Filatova–Orekhova Theory of Capital Structure, 2023, pp 639-674 from Springer

Abstract: Abstract In this chapter, a new approach to rating methodology is suggested. Chapters 28 – 30 are devoted to rating of non-financial issuers, while Chaps. 31 and 32 are devoted to investment project rating (Peter Brusov, Tatiana Filatova and Natali Orekhova Ratings: Critical Analysis and New Approaches of Quantitative and Qualitative Methodology 2021, Springer Nature Publishing). The key factors of a new approach are: (1) The adequate use of discounting of financial flows virtually not used in existing rating methodologies, (2) The incorporation of rating parameters (financial “ratios”) into the modern theory of capital structure (Brusov–Filatova–Orekhova (BFO) theory) (Brusov et al. Modern corporate finance, investment and taxation. Springer, 2015) in Chap. 29 (in this Chapter and in Chap. 30 into its perpetuity limit). This, on the one hand, allows to use the powerful tools of this theory in the rating and, on the other hand, it ensures the correct discount rates when discounting of financial flows. We discuss also the interplay between rating ratios and leverage level which can be quite important in rating. All these create a new base for rating methodologies. New approach to ratings and rating methodologies allows to issue more correct ratings of issuers and makes the rating methodologies more understandable and transparent.

Keywords: Brusov–Filatova–Orekhova theory; Modigliani–Miller theory; Ratings; Discounting of financial flows; Financial “ratios” (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-27929-4_28

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DOI: 10.1007/978-3-031-27929-4_28

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