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How do Rating Agencies Score in Predicting Firm Performance

Author

Listed:
  • Gunter Löffler
  • Peter N. Posch

Abstract

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.

Suggested Citation

  • Gunter Löffler & Peter N. Posch, 2007. "How do Rating Agencies Score in Predicting Firm Performance," SFB 649 Discussion Papers SFB649DP2007-043, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    • Handle: RePEc:hum:wpaper:sfb649dp2007-043
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    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2007-043.pdf
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    Cited by:

    1. Volodymyr Perederiy, 2007. "Kombinierte Liquiditäts- und Solvenzkennzahlen und ein darauf basierendes Insolvenzprognosemodell für deutsche GmbHs," SFB 649 Discussion Papers SFB649DP2007-060, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

    More about this item

    Keywords

    Credit Ratings; Predictive ability; Dynamic Panel Model.;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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