Rating or no rating? That is the question: An empirical examination of UK companies

Eleimon Gonis, Salima Paul, Jon Tucker

Research output: Contribution to journalArticle

2 Citations (Scopus)
2 Downloads (Pure)

Abstract

The aim of this paper is to examine the main determinants of the rating likelihood of UK companies. We use a binary probit specification to model the main drivers of a firm's propensity to be rated. Using a sample of 245 non-financial UK companies over the period 1995-2006, representing up to 2872 firm years, the study establishes important differences in the financial profiles of rated and non-rated firms. The results of the rating likelihood models indicate that the decision to obtain a rating is driven by a company's financial risk, solvency, default risk, public debt issuance, R&D, and institutional ownership, thus identifying a wider range of determinants and extending the current literature. The study also finds that the rating decision can be modelled by means of a contemporaneous or predictive specification without any loss of efficiency or classification accuracy. This offers support to the argument that the rating process is fundamentally forward-looking.

Original languageEnglish
Pages (from-to)709-735
Number of pages27
JournalEuropean Journal of Finance
Volume18
Issue number8
Early online date1 Feb 2012
DOIs
Publication statusPublished - 1 Sep 2012
Externally publishedYes

Fingerprint

Rating
Default risk
Propensity
Probit
Financial risk
Solvency
Public debt
Institutional ownership

Bibliographical note

This is an Accepted Manuscript of an article published by Taylor & Francis in European Journal of Finance on 01/02/2012, available online: http://www.tandfonline.com/10.1080/1351847X.2011.649215

Copyright © and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders.

Keywords

  • credit ratings
  • probit
  • rating determinants
  • rating likelihood

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)

Cite this

Rating or no rating? That is the question : An empirical examination of UK companies. / Gonis, Eleimon; Paul, Salima; Tucker, Jon.

In: European Journal of Finance, Vol. 18, No. 8, 01.09.2012, p. 709-735.

Research output: Contribution to journalArticle

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