Work detail

Estimation of company credit rating by means of ordered probit model applied to Czech bond market environment

Author: Mgr. David Pergl
Year: 2021 - summer
Leaders: Mgr. Magda Pečená Ph.D.
Work type: Finance, Financial Markets and Banking
Language: English
Pages: 111
Awards and prizes:
Abstract: There is a widespread belief among the academics that the bond investors are sufficiently rewarded
for taking higher credit risk in their investments. Recent studies confirmed that the well-behaved
global markets exhibit adverse relationship of bond credit quality and required bond yield.
However, there is no evidence about the Czech market. The purpose of this study is to examine the
relationship between credit rating and bond yield or alternatively credit spread on the Czech bond
market. As majority of Czech bond issuers are not rated we first had to develop appropriate tool
how to measure their credit rating or to build suitable model for credit rating measurement. An
ordered probit model is applied, using financial and company-specific data in the pool of US and
EU companies structured in the panel of observations in 2008-2019. The study demonstrates that
financial and company specific data are sufficient to estimate the credit rating. This model was
applied to the Czech market to determine credit scores of Czech bond issuers. These credit scores
were employed to examine the relationship between credit risk exposure (credit rating), bond yield
and credit spread. The research did not confirm strong linear relationship between credit risk and
return and suggests that there are other factors included in the risk feeling of the Czech investors
or that the bonds are mispriced.




Patria Finance
Česká Spořitelna