Advanced Search
MyIDEAS: Login

Predicting Industrial Bond Ratings with a Probit Model and Funds Flow Components

Contents:

Author Info

  • Gentry, James A
  • Whitford, David T
  • Newbold, Paul
Registered author(s):

    Abstract

    This study uses an n-chotomous multivariate probit model with cash-based funds flow components and financial ratios to predict industrial bond ratings. The n-chotomous probit model provides superior information for evaluating the bond classification process. The model determines the probabilities of a bond being rated in one o f three risk classes. New and reclassified bond rating by Moody's in 19 83 provide the information base for the model that is used to predict 1984 ratings. Initially, the classification and predictive results were slightly lower than previous studies. A careful analysis of the probability distributions showed that the results were close to being correct in over 90 percent of the cases. Five significant cash flow components in predictive bond ratings of reclassified issues were inventories, other current liabilities, dividends, long-term financing, and fixed coverage charges. Likelihood tests indicated that both ratios and funds flow components contributed information that significantly improved the ability of the n -chotomous multivariate probit model to classify new and revised bond ratings. Copyright 1988 by MIT Press.

    Download Info

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Bibliographic Info

    Article provided by Eastern Finance Association in its journal The Financial Review.

    Volume (Year): 23 (1988)
    Issue (Month): 3 (August)
    Pages: 269-86

    as in new window
    Handle: RePEc:bla:finrev:v:23:y:1988:i:3:p:269-86

    Contact details of provider:
    Web page: http://www.easternfinance.org/
    More information through EDIRC

    Order Information:
    Web: http://www.blackwellpublishing.com/subs.asp?ref=0732-8516

    Related research

    Keywords:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Poon, Winnie P. H. & Firth, Michael & Fung, Hung-Gay, 1999. "A multivariate analysis of the determinants of Moody's bank financial strength ratings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(3), pages 267-283, August.
    2. Poon, Winnie P. H., 2003. "Are unsolicited credit ratings biased downward?," Journal of Banking & Finance, Elsevier, vol. 27(4), pages 593-614, April.
    3. Hwang, Ruey-Ching & Chung, Huimin & Chu, C.K., 2010. "Predicting issuer credit ratings using a semiparametric method," Journal of Empirical Finance, Elsevier, vol. 17(1), pages 120-137, January.
    4. Öğüt, Hulisi & Doğanay, M. Mete & Ceylan, Nildağ Başak & Aktaş, Ramazan, 2012. "Prediction of bank financial strength ratings: The case of Turkey," Economic Modelling, Elsevier, vol. 29(3), pages 632-640.
    5. Ken Hung & Hui Wen Cheng & Shih-shen Chen & Ying-Chen Huang, 2013. "Factors that Affect Credit Rating: An Application of Ordered Probit Models," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 94-108, December.
    6. Lee, Hei-Wai & Gentry, James A., 1995. "An empirical study of the corporate choice among common stock, convertible bonds and straight debt: A cash flow interpretation," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(4), pages 397-419.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:bla:finrev:v:23:y:1988:i:3:p:269-86. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.