Ratio Scoring: An Application to Ratios Specified by Standard & Poor’s to be Key Input to Determining Credit Ratings
T. Shawn Strother
Samuel L. Tibbs
American University of Sharjah - School of Business and Management
March 17, 2011
Journal of Applied Finance, Forthcoming
We create a simple method to score ratios based on relative performance. As an example, we apply the technique to ratios identified by Standard & Poor’s as key inputs to determining credit ratings. Our results show that relative scoring produces information not captured by typical ratio analysis employed to set credit ratings. In the case of Standard & Poor’s credit ratings, our ratio scoring technique predicts future rating changes better than the underlying raw ratios.
Number of Pages in PDF File: 27
Keywords: Rating Changes, Credit Ratings, Corporate Bonds
JEL Classification: G10, G12, G14, G20Accepted Paper Series
Date posted: March 26, 2011
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