Credit Rating in Terms of Financial Ability to Pay the Principle and Interest on Debts, Using Data Envelopment Analysis Techniques (Case Study: Companies Listed in Tehran Stock Exchange)

Abstract

The purpose of this study is to determine the credit rating of companies listed in Tehran Stock Exchange, using data envelopment analysis, DEA, technique. The DEA technique is a method of determining relative efficiency for the surveyed entities. Using this technique, the relative credit efficiency of the surveyed companies is calculated and then the credit rating of them, at total level, is determined. The statistical population in this research includes 281 companies for the period of 1385 to 1387. To provide credit rating of the surveyed companies, the data envelopment analysis technique included 2 inputs and 6 outputs that were selected from financial ratios. Research results encompass the credit rating of the surveyed companies that assigned ranks from AAA to D to them. The closer this rank to D, the financial ability decreases and the closer this rank to AAA, the financial ability increases. The results were consistent with the traditional analysis of ratios so that, a company, for example, with a “D” rate assigned to it, using traditional ratio analysis, was also in the worst financial position in comparison with the other surveyed companies, regarding the financial ability to pay debts.

Keywords

• credit ranking
• debt payment ability
• efficiency
• tehran stock exchange