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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.

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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    References listed on IDEAS

    1. Kaplanis, Evi C., 1988. "Stability and forecasting of the comovement measures of international stock market returns," Journal of International Money and Finance, Elsevier, vol. 7(1), pages 63-75, March.
    2. William N. Goetzmann & Lingfeng Li & K. Geert Rouwenhorst, 2005. "Long-Term Global Market Correlations," The Journal of Business, University of Chicago Press, vol. 78(1), pages 1-38, January.
    3. Kjersti Aas & Ingrid Hobaek Haff, 2006. "The Generalized Hyperbolic Skew Student's t-Distribution," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(2), pages 275-309.
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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


    Credit Ratings; Predictive ability; Dynamic Panel Model.;

    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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