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

By E. Gonis, J. Tucker and S. Paul

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 to 2006 representing up to 2,872 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

Publisher: Taylor & Francis
Year: 2012
DOI identifier: 10.1080/1351847X.2011.649215
OAI identifier: oai:eprints.uwe.ac.uk:18854

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