Estimating credit rating of Brazilian companies using accounting ratios

Abstract

This work aims at two different, but complementary, objectives: the first, is checking satisfactorily whether the rating agencies are doing a tight job towards Brazilian Corporations on a time basis; as it has been suggested in some studies carried out in the American Financial Market. The second, is related to the development of a rating methodology based on probit ordered in panel, which, through the accounting ratios employed and dummy variables, is able to foresee a level of rating to any corporation whose evaluation has not been carried out. The results presented here have not shown any clue that rating agencies have been more rigorous in their analysis of Brazilian Corporations through time. Thus, allowing the use of data samples between December 2000 and December 2005 to forecast ratings. Return on assets (ROA), total debts on total assets (DT) along with a dummy variable of Ibovespa presence (IBOV) were the ones which better explain the rating on this proposed model.