Credit rating model development: An ordered analysis based on accounting data

• We propose and test whether a parsimonious credit rating procedure can produce crucial information.
• Based on fundamental publically available information we develop a credit rating model with specific intervals.
• We use ordered probit analysis to determine cut-off points for positioning firms into specific credit rating intervals.
• We test our results and the prediction power of the model in terms of suspension from the stock market.
• We conclude on satisfactory and encouraging results for a market that faced a severe economic crisis after a period of growth.

In this paper we propose and test a methodology for constructing a credit rating model. We follow a polytomous ordered probit analysis leading to the specification of statistically significant credit rating intervals. We test our model with accounting data of Greek listed firms over the years 2004–2013, a period which includes both the pre-crisis growth and the crisis phase of the Greek economy and the stock market. Using the empirically—based rating categories that the model generates endogenously, we observe not only a clear and timely response of ratings to the changing economic environment, but we also obtain significant predictive ability over a period of one, two and three years.