Credit Ratings: Qualitative Versus Quantitative Information

49 Pages Posted: 19 Jun 2017

Date Written: June 15, 2017


While credit rating agencies are of central importance to credit markets, it is still unclear how credit ratings decisions are being made. Are credit rating quantitatively hard-wired? Or, do ratings represent a more holistic approach to the evaluation of creditworthiness? I evaluate the quantitative content of rating decisions made by S&P Global Ratings Inc. and assess its development over time. I find that S&P rating decisions moved from being quantitative to being qualitative and then being highly quantitative again in the last few years. I also find that rating standards became more lenient during the global financial crisis suggesting that it is possible that ratings were artificially held up to avoid even further downgrades.

My results suggest that, in general, S&P rating decisions are highly quantitative and can be predicted with a high degree of accuracy using firm characteristics. In fact, my analysis suggests that credit rating decisions can be replaced by an algorithm that uses just ten financial variables.

Keywords: Credit Rating

JEL Classification: G24, G32

Suggested Citation

Benmelech, Efraim, Credit Ratings: Qualitative Versus Quantitative Information (June 15, 2017). Available at SSRN: or

Efraim Benmelech (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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