Credit Rating and Its Interaction With Financial Ratios: A Study of BSE 500 Companies

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Author(s): Shraddha Mishra (IILM University, India)and Reenu Bansal (IILM University, India)
Copyright: 2019
Pages: 18
Source title: Behavioral Finance and Decision-Making Models
Source Author(s)/Editor(s): Tripti Tripathi (Jiwaji University, India), Manoj Kumar Dash (Khallikote University, India)and Gaurav Agrawal (Indian Institute of Information Technology and Management Gwalior, India)
DOI: 10.4018/978-1-5225-7399-9.ch014

Keywords: Accounting and Finance / Business & Management / Business Science Reference / Economics & Economic Theory

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Abstract

Credit rating evaluates credit worthiness of corporate and securities issued by government. It provides investors with unbiased reviews and opinion about the credit risk of various securities. The main aim of the chapter is to identify the relationship between the financial ratios and rating symbols. The sample of 158 firms is taken into consideration that discriminates best ratings given by credit rating firms. In order to examine the variability in ratings issued by various rating agencies, the time period of eight years starting from April 2009 to March 2017 has been selected. The study employed the multinomial logistic regression model to explain the relationship among the variables. The analysis suggests that variables such as debt to equity ratio, profit after tax, returns on capital employed, and return on net worth are those having the highest impact on ratings and thus there is also discriminating power among Indian rating agencies.

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