A Company’s Credibility is Not in Their Credit Ratings
A Company’s Credibility is Not in Their Credit Ratings
Agencies that have been announcing corporations’ credit ratings are currently being put into the hot seat by economic experts. These companies have been actively participating in the finance business ever since the United States’ economy started to fall, and according to study, their reliability is dubious.
According to Dr. Mungo Wilson, their study proved that these credit ratings only show low scores and are discouraging for companies; they are not clear or distinct proof of an organization’s credibility. These ratings sadly remain as one of the primary ways that measure a business’s quality, making it frustrating for some people who are engaged in the industry.
It is quite unfair that they only monitor and measure the standing of a company through inaccurate terms. The researchers argue that the financial reports and market figures of the companies are enough to measure a company’s ineptness. They put this recommendation to a test model to come up with the default risk of a company.
They then compare it to the company’s capability to Standard & Poor’s credit ratings. They tested their model with the data from the year 1986 to 2008, and the researchers found out that the ‘failure score’ of their model is more reliable compared to the currently used system based on credit ratings.
The data they gathered also revealed that ratings are greatly dependent to the systematic default risk of companies. They estimated how clients would be affected in case a sudden downfall happens to the economy. These findings are helpful for companies and investors alike, for it will give them a clearer understanding to make wiser decisions.
The researchers also pointed out that if these companies only looked at one basis on a company’s credibility, it is less rational. Default prediction of data would only show a partial scale of a company’s ratings, in the other hand, measures of systematic risk shows not only the updated credit rating or a company, but also its cumulative credit condition.
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Filed under: bad credit • Credit • Credit Score • line of credit
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