A multicriteria outranking approach for modeling corporate credit ratings: An application of the Electre Tri-nC method. (January 2019)

• Record Type: Journal Article
• Authors: Doumpos, Michalis; Figueira, José Rui
• Is Part Of: Omega. Volume 82(2019)
• Page Start: 166
• Page End: 180
• Publication Date: 2019-01
• Subjects: Multiple criteria analysis -- Decision support -- Electre Tri-nC -- Credit ratings; Management -- Periodicals; 658.4005
• DOI: 10.1016/j.omega.2018.01.003
• Languages: English
• ISSNs: 0305-0483

Abstract

Highlights: Internal credit ratings developed with the ELECTRE-nC outranking method. Extensive experimental testing through a large-scale simulation. Analysis of the properties of the results for different modeling parameters. Benchmarking against external ratings by major credit rating agencies. Abstract: Corporate credit ratings are widely used in financial services for risk management, investment, and financing decisions. In this study, the use of a recently developed multicriteria outranking approach, namely theElectre Tri-nC method, is examined for constructing internal credit rating models in an expert-based judgmental framework. The models are constructed in a multicriteria classification (sorting) setting and the results are analyzed in terms of their internal properties as well as their deviations from risk rating categories defined by rating agencies ( i.e. external benchmarking). A simulation/scenario analysis is conducted to examine the results and performance of the outranking models in relation to their parameters. Empirical results are provided for a sample of European firms rated by three leading rating agencies.