The determinants of credit rating: brazilian evidence

Abstract

This study attempts to identify the determinant factors of credit rating in Brazil. The relevance of this proposal is based on the importance of the subject as well as the uniqueness of the Brazilian market. As for originality, the great majority of previous studies regarding credit rating have been developed in the US, UK and Australia; therefore the effect on other markets is still unclear, especially in emerging markets, like Brazil. We've used a Generalized Estimating Equations (GEE) model considering a panel structure with a categorical dependent variable (credit rating) and ten independent variables: leverage, profitability, size, financial coverage, growth, liquidity, corporate governance, control, financial market performance and internationalization. The sample consisted of 153 rating observations during the period of 1997-2011 for a total of 49 public firms operating in the Brazilian Market. Results showed that leverage and internationalization are significant at the 1% level in explaining credit rating. Performance in the financial market was significant at a 5% level; profitability and growth were also statistically significant, but at a 10% significance level.

Determinants of Credit Rating Actions: Evidence from International Maritime Companies

“…As shown in Table 3 and Figure 2, it is determined that the factor of "market conditions" (as macro-economic factor) has been disclosed as the main credit rating action determinant by the CRAs under the 69 observations. This finding is in line with Murcia et al (2014)'s argument that due to the high costs of obtaining the new and confidential information, credit rating agencies tend to rely solely on the market risk in most rating actions rather than company-specific risk, thus produce predictable credit ratings (Murcia et. al.…”

“…The reason behind this finding may be the opaque nature of maritime companies and high costs of obtaining private information to evaluate firm-specific factors. However, opacity prevails in credit rating actions in line with the arguments of Bona & Ribeiro (2009), Elkhoury (2008) and Murcia et al (2014). Although the disclosures on external market conditions provides insight, in most observations, factors such as "financial profile" and "corporate business profile" lack detailed information disclosed to the investors.…”

“…Bone & Ribeiro (2009) and Elkhoury (2008) argues that the credit rating process lacks transparency, and the relevant factors taken into consideration by the credit agencies in determining the credit ratings can be considered as "opaque" information for the investors. Murcia et al (2014) also argues that CRAs lack incentives to demand detailed information of debt issuers due to the high cost inherent in obtaining new information. CRAs tend to rely solely on market risk in most rating actions rather than company-specific risks, resulting in predictable credit ratings (Murcia et al, 2014).…”

“…Murcia et al (2014) also argues that CRAs lack incentives to demand detailed information of debt issuers due to the high cost inherent in obtaining new information. CRAs tend to rely solely on market risk in most rating actions rather than company-specific risks, resulting in predictable credit ratings (Murcia et al, 2014).…”

Can accounting-based and market-based indicators predict changes in the risk rating of brazilian banks?

“…It is difficult for a big company or country to secure credit with investors before being assessed by a risk rating agency regarding its capacity to comply with its commitments (Adams, Burton, & Hardwick, 2003;Papaioannou, 2011). Specifically for the financial market, ratings are very important for banks because, according to Murcia, Dal-Ri Murcia, Rover, and Borba (2014), the cost of debt of new loans and financing is more expensive when their risk ratings are downgraded.…”