How do rating agencies score in predicting firm performance

Gunter Löffler and Peter Posch

No 2007-043, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: We use dynamic panel analysis to examine whether credit rating agencies achieve what they claim to achieve, namely, look into the future when assigning their ratings. We find that Moody's ratings help predict individual financial ratios over a horizon of up to five years. Ratings also predict a multivariate credit score, again over five years. The contribution of ratings appears to be economically significant and robust for different specifications.

Keywords: Credit Ratings; Predictive ability; Dynamic Panel Model (search for similar items in EconPapers)
JEL-codes: C33 G20 G33 (search for similar items in EconPapers)
Date: 2007
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