Credit scoring is one of the tools used to analyze the creditworthiness of a firm. The implementation of enormous financial data in credit scoring could lead to the emergence of unnecessary data in determining the credit score of a firm. In past studies, modifications to the credit scoring methodology were repeatedly done to obtain accuracy. In this paper, a novel approach where the credit score of a firm is determined based on the estimation of the probability of default from the KMV-Merton model, the selected financial ratios, and credit ratings. The study is distinctive in providing credit scores and ranking of firms based on qualitative and quantitative firms’ historical financial information and current market value. The merger of the KMV-Merton model, financial ratios, and credit rating is incorporated in this study by acquiring information of 10% each to find the credit scores of firms. In conclusion, this merger can provide credit scores and credit ranking for the selected firms that have a good/average/below average credit quality. It also can differentiate the ranking position between investment-grade and speculative-grade firms. Furthermore, the KMV-Merton model and credit ratings provide an estimate of credit scores that is more consistent compared to financial ratios. Practically, credit scoring helps risk analysts, investors, and lenders to make informed decisions.
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In-Text Citation: (Mansor et al., 2023)
To Cite this Article: Mansor, A., Hamid, A. S. A., Abdul, J. H. J., & Yusof, N. M. (2023). Determining The Credit Score Ranking of Malaysian Publicly Traded Companies Using A Merging of The KMV Merton Model, Financial Ratios and Credit Ratings. International Journal of Academic Research in Accounting Finance and Management Sciences, 13(2), 433–446.
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