Ratio Scoring: An Application to Ratios Specified by Standard & Poor’s to be Key Input to Determining Credit Ratings

Journal of Applied Finance, Forthcoming

27 Pages Posted: 26 Mar 2011

See all articles by T. Shawn Strother

T. Shawn Strother

University of Nebraska-Lincoln

Samuel L. Tibbs

American University of Sharjah - School of Business and Management

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Date Written: March 17, 2011

Abstract

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.

Keywords: Rating Changes, Credit Ratings, Corporate Bonds

JEL Classification: G10, G12, G14, G20

Suggested Citation

Strother, Timothy Shawn and Tibbs, Samuel L., Ratio Scoring: An Application to Ratios Specified by Standard & Poor’s to be Key Input to Determining Credit Ratings (March 17, 2011). Journal of Applied Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1788925

Timothy Shawn Strother

University of Nebraska-Lincoln ( email )

Lincoln, NE 68588-0490
United States

HOME PAGE: http://www.unl.edu

Samuel L. Tibbs (Contact Author)

American University of Sharjah - School of Business and Management ( email )

P.O. Box 26666
Sharjah
United Arab Emirates
971 06 515 4169 (Phone)

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