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

Applying recurrent event analysis to understand the causes of changes in firm credit ratings

Listed author(s):
  • Yan-Shing Chen
  • Po-Hsin Ho
  • Chih-Yung Lin
  • Wei-Che Tsai
Registered author(s):

    This study applies recurrent event analysis to examine the determinants of changes in firm credit ratings. This study uses two extended Cox proportional hazard models to examine upgrade and downgrade data separately. Explanatory variables are taken from financial ratios in Z-score (Altman, 1968) and AR-score (Altman and Rijken, 2004) models. The empirical results first suggest that sales to asset ratio and market equity to book debt ratio are the key explanatory variables for the sample comprising credit rating upgrade firms examined using Z-scores specification. Next, the sample of credit rating upgrade firms examined using AR-score variables reveals that the first rating of young firms is generally underestimated. Additionally, analysis of sample comprising credit downgrade firms examined using Z-score specification identifies working capital to asset ratio and market equity to book debt ratio as the key explicative variables. Furthermore, analysis of sample of credit downgrade firms examined using AR-score model reveals that larger firms are not easily downgraded, and old firms are more likely to be downgraded because of their ratings typically having initially been overestimated. Finally, high q firms with high retained earnings may suffer from underinvestment problem. Consequently, credit agencies may be reluctant to upgrade such firms.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 22 (2012)
    Issue (Month): 12 (June)
    Pages: 977-988

    in new window

    Handle: RePEc:taf:apfiec:v:22:y:2012:i:12:p:977-988
    DOI: 10.1080/09603107.2011.633888
    Contact details of provider: Web page:

    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:taf:apfiec:v:22:y:2012:i:12:p:977-988. 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: (Chris Longhurst)

    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.