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Volume 33 Number 2 December 2008 |
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Explaining Credit Ratings of Australian Companies--An Application of the Merton Model |
| Suparatana Tanthanongsakkun and Sirimon Treepongkaruna
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Abstract |
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This paper examines how the default likelihood indicator computed from the option-based model of Merton (1974) together with two default-related factors, namely firm size and book-to-market ratio, effectively explain credit ratings when compared to accounting ratios. Using Australian companies that are rated by Standard and Poor's during 1992-2003 and ordered probit analysis, we find that the market-based model is more informative in explaining credit ratings than the accounting-based model.
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Keywords |
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DEFAULT RISK; CREDIT RATINGS; ORDERED PROBIT.
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Contact DetailsSuparatana TanthanongsakkunDepartment of Banking and Finance, Chulalongkorn University, 254 Phyathai Road, Patumwan, Bangkok Thailand. 10330. Sirimon Treepongkaruna School of Finance and Applied Statistics, College of Business and Economics, The Australian National University, Canberra, ACT 0200. Email: sirimon.treepongkaruna@anu.edu.au |
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