Page 63 - Special Topic Session (STS) - Volume 2

STS459 Gan C.P. et al.
3. Numerical Results
Consider the credit ratings of 10 companies in the electronics sector in 15
years (from 1999 to 2013) taken from the database of Taiwan Economic
Journal. The values of eight selected Taiwan macroeconomic variables from
year 1999 to year 2013 are also obtained.
The results for Companies 2 and 6 are chosen to illustrate the impact of
macroeconomic variables. From Figure 3.1, we note that for Company 6, an
increase in the interest rate tends to (a) decrease the probability of improving
the rating to 7 from present rating of 8 and (b) increase the probability of
staying in rating 8 or deteriorating to rating 9 in the next quarter when the
rating in the present quarter is 8. Thus an increase in interest rate would
increase the credit risk. From the plots of transition probabilities for other
macroeconomic variables, we obtain Table 3.1.

Table 3.4 Effects of increased values of Taiwan macroeconomic variables on
credit risk (“+” (or “-”) sign indicates that the macroeconomic variable tends to
increase (or decrease) the credit risk)
Macroeconomic Variable Company 2 Company 6
Interest Rate + +
Exchange Rate + +
TSEC weighted Index - -
Gold Prices - -
Money Supply M2 - -
Inflation Rate No clear indication No clear indication
Unemployment Rate - +
GDP - -

The results in Table 3.1 basically agree with the corresponding results reported
so far in the literature.

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