A study on AAA rated companies

Abstract

Credit rating evaluates the credit worthiness of a debtor, especially an individual, a business or a government. Generally, Credit rating agency involves in the evaluation process of debtor’s ability to pay off its debt and the possibility of default. In Bangladesh Over the years, the number of credit rating agencies (CRA) has increased several folds, from only two in 2009 to eight in 2015. Consequently, the competition among the CRAs for market share has become more competitive and complex. Since credit rating is very sensitive in relation to quality, this enhanced competition may lead to deteriorated or inflation ratings by the CRAs to keep hold of its clients and keep the cash-flow unharmed. Credit rating has been playing a vital role in reinforcing the financial markets, regulating the financial markets, estimating risk premium, enhanced transparency in the credit and fixed income securities market, and standardization of credit evaluation process. However, there are also some drawbacks of the credit rating. These drawbacks include that credit rating can be biased in some cases, in absence of appropriate knowledge management by the credit rating companies altering the concerned analyst lead to discrepancies, and credit ratings cannot be treated as only a standalone measure to invest.