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The Proposition Value Of Corporate Ratings - A Reliability Testing Of Corporate Ratings By Applying Roc And Cap Techniques

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Author Info

  • Lis Bettina

    (University of Mainz, Germany)

  • Nessler Christian

    (University of Mainz, Germany)

  • Retzmann Jan

    (Deutsche Pfandbriefbank, Germany)

Registered author(s):

    Abstract

    We analyze the Altman model, a Logit model as well as the KMV model in order to evaluate their performance. Therefore, we use a random sample of 132 US firms. We create a yearly and a quarterly sample set to construct a portfolio of defaulting and a counter portfolio of non-defaulting companies. As we stay close to the recommendations of the Basel Capital Accord framework in order to evaluate the models, we use Receiver Operating Characteristic (ROC) and Cumulative Accuracy Profile (CAP) techniques. We find that the Logit model outperforms the Altman as well as the KMV model. Furthermore, we find that the Altman model outperforms the KMV model, which is nearly as accurate as a random model.

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    File URL: http://eccsf.ulbsibiu.ro/RePEc/blg/journl/626Lis&Nessler&Retzmann.pdf
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    Bibliographic Info

    Article provided by Lucian Blaga University of Sibiu, Faculty of Economic Sciences in its journal Studies in Business and Economics.

    Volume (Year): 6 (2011)
    Issue (Month): 2 (August)
    Pages: 60-90

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    Handle: RePEc:blg:journl:v:6:y:2011:i:2:p:60-90

    Contact details of provider:
    Postal: Lucian Blaga University of Sibiu, Faculty of Economic Sciences Dumbravii Avenue, No 17, postal code 550324, Sibiu, Romania
    Phone: 004 0269 210375
    Fax: 004 0269 210375
    Email:
    Web page: http://economice.ulbsibiu.ro/
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    Related research

    Keywords: Altman Model; Cumulative Accuracy Profile (CAP); Distance to Default; Logit Model; Moody’s KMV; Receiver Operating Characteristic (ROC); Z-score.;

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    1. Barniv, Ran & McDonald, James B, 1999. " Review of Categorical Models for Classification Issues in Accounting and Finance," Review of Quantitative Finance and Accounting, Springer, vol. 13(1), pages 39-62, July.
    2. Blochlinger, Andreas & Leippold, Markus, 2006. "Economic benefit of powerful credit scoring," Journal of Banking & Finance, Elsevier, vol. 30(3), pages 851-873, March.
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