Improving performance of corporate rating prediction models by reducing financial ratio heterogeneity
We introduce a new approach to improve the performance of rating prediction models for multinational corporations. In this segment, the low number of defaults poses a challenge, as it prevents rating models to be constructed for individual industry sectors or regions. We show that reducing group-level heterogeneity in financial ratios results in a rating prediction model with better performance than both unadjusted models and models adjusted by including industry dummies or other simpler procedures. Our approach fills a gap in cases where a limited dataset does not permit the construction of separate models for individual industries or regions.
Year of publication: |
2008
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Authors: | Niemann, Martin ; Schmidt, Jan Hendrik ; Neukirchen, Max |
Published in: |
Journal of Banking & Finance. - Elsevier, ISSN 0378-4266. - Vol. 32.2008, 3, p. 434-446
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Publisher: |
Elsevier |
Saved in:
Online Resource
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