A1244
Title: The impact of economic shocks on the credit ratings of Chinese listed firms
Authors: Chen Feng - Southwestern University of Finance and Economics (China) [presenting]
Edward Altman - New York University (United States)
Zhiyong Li - Southwestern University of Finance and Economics (China)
Xiyu Liang - Southwestern University of Finance and Economics (China)
Abstract: The aim is to construct a Chinese Z-score model and CCRE (Chinese Credit Rating Equivalence) belonging to Chinese listed companies using financial data and to analyse the sensitivity of corporate credit rating changes when encountering economic shocks. The results show that as profit margins continue to fall, corporate credit ratings become worse. When the EBIT margin falls by 5\%, only 315 companies' ratings fall; when this value rises to 20\%, 1146 companies' ratings fall. Firms with lower initial credit ratings are found to have the ability to maintain their credit ratings under different scenarios. Related to the nature of industries, the utilities and real estate industries perform worse in the stress tests. The mechanisms that influence credit risk are further explored, and it is found that increased debt is the main reason for increased corporate credit risk. In addition, government subsidies help firms cope with unexpected economic deterioration and play an important role in maintaining the firms' credit ratings.
