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How do Rating Agencies Score in Predicting Firm Performance

  • Gunter Löffler
  • Peter N. Posch

We use dynamic panel analysis to examine whether credit rating agencies achieve what they claim to achieve, namely, look into the future when assigning their ratings. We find that Moody's ratings help predict individual financial ratios over a horizon of up to five years. Ratings also predict a multivariate credit score, again over five years. The contribution of ratings appears to be economically significant and robust for different specifications.

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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2007-043.pdf
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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2007-043.

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Length: 29 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2007-043
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