| Abstract: | This paper reports on the construction of a multiple discriminant analysis model which explains the specific ratings assigned by Standard and Poor's Corporation to bank holding company (BHC) capital notes and debentures. It thus investigats the ratings of debt securities issued by banking organizations, an area largely ignored in bond rating research to date. Improving on the methodology of current research concerning BHC bond ratings, the model is 78.5 percent accurate in initially classifying the top three rating categories—AAA, AA, and A. Lachenbruch validation finds the model to be 64.6 percent accurate. Size, variability of net income, the economic environment of the issuing BHC, and the amount and composition of total capital appear to be the principal variables allowing successful discrimination among the debet issue ratings. |
