Financial Factors Determining CAREs Ratings
Published: 2017
Author(s) Name: Rahul Gupta |
Author(s) Affiliation: Research Scholar, department of Commerce, University of Jammu, J&K, India.
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Abstract
Rating agencies evaluate a number of qualitative
and quantitative factors while assigning rating to a
particular company. Standard mathematical formulas
do not exist for determining credit ratings. Instead,
credit rating agencies use their experience and
judgement in assigning ratings. What factors rating
agencies consider significant in providing ratings to
the companies is an important question. The present
study aims to contribute to the above mentioned area
by identifying the financial determinants of credit
ratings assigned to Indian companies by CARE, one
of the top rating agencies of India. Ordered probit
analysis is used on unbalanced panel data with credit
rating as the dependent categorical variable and six
financial factors viz. size, liquidity, profitability,
interest coverage, leverage, and growth as the
independent variables. Results from ordered probit
analysis indicate that the likelihood of credit ratings
to be on higher side is more with increase of size,
liquidity, profitability, interest coverage, growth and
with a decrease in leverage. Further, size, profitability,
and leverage are found to be statistically significant
factors at the 1% level, liquidity and growth at the 5%
level and interest coverage at the 10% level.
Keywords: Credit Rating, Financial Determinants, India, CARE
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