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

Author

Listed:
  • Lis Bettina

    (University of Mainz, Germany)

  • Nessler Christian

    (University of Mainz, Germany)

  • Retzmann Jan

    (Deutsche Pfandbriefbank, Germany)

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.

Suggested Citation

  • Lis Bettina & Nessler Christian & Retzmann Jan, 2011. "The Proposition Value Of Corporate Ratings - A Reliability Testing Of Corporate Ratings By Applying Roc And Cap Techniques," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 6(2), pages 60-90, August.
  • Handle: RePEc:blg:journl:v:6:y:2011:i:2:p:60-90
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    References listed on IDEAS

    as
    1. Blochlinger, Andreas & Leippold, Markus, 2006. "Economic benefit of powerful credit scoring," Journal of Banking & Finance, Elsevier, vol. 30(3), pages 851-873, March.
    2. 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.
    3. repec:bla:joares:v:4:y:1966:i::p:71-111 is not listed on IDEAS
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