Financial Ratios and Credit Ratings of Thai Listed Companies
Abstract
This paper investigates a relationship between financial ratios and Thai listed company’s credit ratings as assigned by TRIS rating company. The estimated model is based Ordered Probit and the data cover 2004 to 2008. We find that financial ratios that explain company’s credit ratings include return on assets (ROA), debt to equity ration (DE) , and net working capital to total assets ratio (NWCTA). Other non-financial ratio factor that determines credit ratings is a company’s asset size. Our model correctly predicts actual credit rating at 79.2 percent of the time for the whole sample, 78.9 percent for low investment grade group (rating BBB+, BBB, BBB-), 82.7 percent for medium investment grade group (rating A+, A, A-), and 68.2 percent for high investment grade group (rating AAA, AA+, AA, AA-).
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