IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

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

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

    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.

    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.

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

    Volume (Year): 23 (1988)
    Issue (Month): 3 (August)
    Pages: 269-286

    in new window

    Handle: RePEc:bla:finrev:v:23:y:1988:i:3:p:269-86
    Contact details of provider: Web page:

    More information through EDIRC

    Order Information: Web:

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

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

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.