Corporate Credit Rating

Abstract

Corporate credit ratings are important indicators of a firm's creditworthiness and influence investors, creditors, borrowing costs, and access to external finance. This review examines the major financial factors associated with corporate credit ratings, with particular focus on profitability, liquidity, leverage, and solvency. The reviewed literature indicates that credit rating agencies use both quantitative financial indicators and qualitative information, including corporate governance, management quality, business conditions, and macroeconomic factors. Evidence generally suggests that stronger liquidity and solvency are associated with better creditworthiness, while excessive leverage increases financial risk. Profitability, particularly Return on Assets (ROA) and Return on Equity (ROE), has also been linked with higher credit ratings, although its effect may vary across industries and market conditions. The empirical analysis presented in the reviewed study focuses on non-financial UK-listed firms during 2021–2024, a period characterized by monetary tightening and elevated interest rates. Using Ordered Logit and Ordered Probit models, the study finds that liquidity and solvency indicators play an important role in explaining corporate credit ratings. The Current Ratio shows a positive and significant relationship with ratings, while interest-related solvency measures also demonstrate importance. In contrast, ROA and asset turnover are reported as statistically insignificant. The findings highlight that creditworthiness cannot be explained by profitability alone and should be assessed through a combination of liquidity, leverage, solvency, and broader financial conditions. Overall, the review emphasizes the importance of balance-sheet strength and debt-servicing capacity in corporate credit rating assessment.