Factors Affecting the Credit Rating of Companies with MSCI Index by the Three Credit Rating Agencies of Standard and Poor’s, Moody’s, and Fitch Ratings
Keywords:
Credit Rating, Financial Ratios, Ordered Probit, Bivariate Ordered ProbitAbstract
This study aimed to investigate the relationship among the factors affecting the credit rating of companies with Morgan Stanley Capital International (MSCI) index rated by the three rating agencies i.e. S&P Global Ratings, Moody’s Investors Service, and Fitch Ratings during 2004 to 2020 using the data analysis through the models of Ordered Probit and Bivariate Ordered Probit.
According to the study findings, the financial ratio factors positively affecting the credit rating included the Return on Asset (ROA) and Interest Coverage Ratio (ICR) while the non-financial ratio factors positively affecting the credit rating were the asset size and National Credit Rating (CTR). In addition, the estimation using the Bivariate Ordered Probit model and Ordered Probit model shared the similar results. In contrary, the additional factors negatively affecting the credit rating were involved with the environmental, social, and governance rating (i.e. ESG Score).
The aforementioned models were used to predict the credit rating of the 3 credit rating agencies, namely, 1) Standard and Poor’s with 74.87% accuracy, 2) Moody’s with 87.57% accuracy, and 3) Fitch Ratings with 87.11% accuracy, respectively.
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