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Credit Risk Assessment By Rating Agencies: Standardization Versus Subjectivity

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  • Monica Dudian

    (Academy of Economic Studies)

Abstract

The development of the international financial market, the globalization of the financial resources and the increase of the world economic insecurity have been accompanied by the exponential rising of the corporate rating after 1980. There are three big agencies at mondial level, Moody’s, Standard&Poor’s and Fitch, which cover more than 94% of the international credit rating. The objective of this paper is to emphasize the conceptual and procedural similarities and differences of the mentioned agencies, with reference to the concepts and indicators used in the credit risk assessment. The main conclusions are: (1) the scales of risk assessment related to a security or entity used by the great rating agencies are approximately identical for the investment grade category, but they are different starting with the speculative grade category (2) the credit risk grade is based on a common standard list of risk factors.

Suggested Citation

  • Monica Dudian, 2009. "Credit Risk Assessment By Rating Agencies: Standardization Versus Subjectivity," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 4(4), pages 52-65, december.
  • Handle: RePEc:blg:journl:v:4:y:2009:i:4:p:52-65
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    References listed on IDEAS

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    1. Borensztein, Eduardo & Cowan, Kevin & Valenzuela, Patricio, 2013. "Sovereign ceilings “lite”? The impact of sovereign ratings on corporate ratings," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4014-4024.
    2. Carmen M. Reinhart, 2002. "An Introduction," World Bank Economic Review, World Bank Group, vol. 16(2), pages 149-150, August.
    3. Czarnitzki, Dirk & Kraft, Kornelius, 2004. "Innovation indicators and corporate credit ratings: evidence from German firms," Economics Letters, Elsevier, vol. 82(3), pages 377-384, March.
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    Keywords

    credit risk; rating agencies; risk factors;

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