TY - JOUR
T1 - Explaining Credit Ratings of Australian Companies—An Application of the Merton Model
AU - Tanthanongsakkun, Suparatana
AU - Treepongkaruna, Sirimon
PY - 2008/12
Y1 - 2008/12
N2 - 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.
AB - 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.
KW - CREDIT RATINGS
KW - DEFAULT RISK
KW - ORDERED PROBIT
UR - http://www.scopus.com/inward/record.url?scp=66649090622&partnerID=8YFLogxK
U2 - 10.1177/031289620803300203
DO - 10.1177/031289620803300203
M3 - Article
SN - 0312-8962
VL - 33
SP - 261
EP - 275
JO - Australian Journal of Management
JF - Australian Journal of Management
IS - 2
ER -