Skip to main content

LUP Student Papers

LUND UNIVERSITY LIBRARIES

Understanding Credit Ratings and their Drivers: An Empirical Study of U.S.-based Corporations

Törnmalm, Simon LU (2019) NEKH02 20191
Department of Economics
Abstract
This text sets out to examine what the general quantitative drivers of corporate credit ratings are. The result from an OLS regression identifies the following drivers: sales, the size of EBITDA in relation to debt, profitability, and interest coverage. When comparing the ratings from the agencies on a stand-alone basis, there are some differences. While interest coverage is a driving factor of S&P’s ratings, the results for that variable were ambiguous for Moody’s and Fitch. Furthermore, the analysis of Moody’s showed that the profitability measurement of EBIT-margin was a driving factor rather than return on assets as for the two other agencies. Examining the incentives of managers to target specific credit ratings also gave support to... (More)
This text sets out to examine what the general quantitative drivers of corporate credit ratings are. The result from an OLS regression identifies the following drivers: sales, the size of EBITDA in relation to debt, profitability, and interest coverage. When comparing the ratings from the agencies on a stand-alone basis, there are some differences. While interest coverage is a driving factor of S&P’s ratings, the results for that variable were ambiguous for Moody’s and Fitch. Furthermore, the analysis of Moody’s showed that the profitability measurement of EBIT-margin was a driving factor rather than return on assets as for the two other agencies. Examining the incentives of managers to target specific credit ratings also gave support to the idea that a driving factor of credit ratings is managerial decision-making. (Less)
Please use this url to cite or link to this publication:
author
Törnmalm, Simon LU
supervisor
organization
course
NEKH02 20191
year
type
M2 - Bachelor Degree
subject
keywords
Credit ratings, drivers, credit rating agencies, targeting credit ratings
language
English
id
8984380
date added to LUP
2019-08-08 11:30:44
date last changed
2019-08-08 11:30:44
@misc{8984380,
  abstract     = {{This text sets out to examine what the general quantitative drivers of corporate credit ratings are. The result from an OLS regression identifies the following drivers: sales, the size of EBITDA in relation to debt, profitability, and interest coverage. When comparing the ratings from the agencies on a stand-alone basis, there are some differences. While interest coverage is a driving factor of S&P’s ratings, the results for that variable were ambiguous for Moody’s and Fitch. Furthermore, the analysis of Moody’s showed that the profitability measurement of EBIT-margin was a driving factor rather than return on assets as for the two other agencies. Examining the incentives of managers to target specific credit ratings also gave support to the idea that a driving factor of credit ratings is managerial decision-making.}},
  author       = {{Törnmalm, Simon}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Understanding Credit Ratings and their Drivers: An Empirical Study of U.S.-based Corporations}},
  year         = {{2019}},
}