Understanding Credit Ratings and their Drivers: An Empirical Study of U.S.-based Corporations

Sammanfattning: This text sets out to examine what the general quantitative drivers of corporate credit ratings are. The result from an OLS regression identifies the following drivers: sales, the size of EBITDA in relation to debt, profitability, and interest coverage. When comparing the ratings from the agencies on a stand-alone basis, there are some differences. While interest coverage is a driving factor of S&P’s ratings, the results for that variable were ambiguous for Moody’s and Fitch. Furthermore, the analysis of Moody’s showed that the profitability measurement of EBIT-margin was a driving factor rather than return on assets as for the two other agencies. Examining the incentives of managers to target specific credit ratings also gave support to the idea that a driving factor of credit ratings is managerial decision-making.