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How do rating agencies score in predicting firm performance

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  • Löffler, Gunter
  • Posch, Peter N.

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.

Suggested Citation

  • Löffler, Gunter & Posch, Peter N., 2007. "How do rating agencies score in predicting firm performance," SFB 649 Discussion Papers 2007-043, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2007-043
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    1. repec:hum:wpaper:sfb649dp2007-060 is not listed on IDEAS
    2. Perederiy, Volodymyr, 2007. "Kombinierte Liquiditäts- und Solvenzkennzahlen und ein darauf basierendes Insolvenzprognosemodell für deutsche GmbHs," SFB 649 Discussion Papers 2007-060, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.

    More about this item

    Keywords

    Credit Ratings; Predictive ability; Dynamic Panel Model;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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