Liquidity and ability to pay |
General liquidity (CA + NCA)/(CL + NCL) |
Similarly to what has been indicated previously, this variable presents an overview of the company’s general ability to pay. |
EBIT/financial expense |
Represents the commitment of EBIT to financial expenses. |
Indebtedness and capital structure |
Third-party capital/total liabilities (CL + NCL)/total liabilities |
As indicated by Kisgen (2006Kisgen, D. J. (2006). Credit ratings and capital structure. The Journal of Finance, 61(3), 1035-1072. ), credit notes would influence alterations in capital structure. |
Third-party capital/own capital Total liabilities/NE |
Similarly to what was previously indicated by Kisgen (2006Kisgen, D. J. (2006). Credit ratings and capital structure. The Journal of Finance, 61(3), 1035-1072. ), credit notes would influence alterations in capital structure. |
Profitability indicators |
ROI (EBIT/average capital invested) x (1-IT/SCNP) |
Return on investment generated by the company. Indicator frequently used in evaluating investments. |
Risk indicators |
DFL [ROA + (ROA - Ki) x L/NE]/ROA |
Represents the company’s degree of financial leverage and is a fundamental aspect in evaluating the ability to pay. Used by Hentschel and Kothari (2001Hentschel, L., & Kothari, S. P. (2001). Are corporations reducing or taking risks with derivatives? Journal of Financial and Quantitative Analysis, 36(1), 93-118. ) and by Dehaan (2017DeHaan, E. (2017). The financial crisis and corporate credit ratings. The Accounting Review, 92(4), 161-189. ). In addition, Murcia, Dal-Ri Murcia, Rover, and Borba (2014Murcia, F. C. D. S., Dal-Ri Murcia, F., Rover, S., & Borba, J. A. (2014). The determinants of credit rating: Brazilian evidence. BAR-Brazilian Administration Review, 11(2), 188-209. ) indicated leverage as a determinant factor of ratings in Brazilian companies. |
Share volatilities NL (Share pricet /share pricet-1) |
Indicated by Hentschel and Kothari (2001Hentschel, L., & Kothari, S. P. (2001). Are corporations reducing or taking risks with derivatives? Journal of Financial and Quantitative Analysis, 36(1), 93-118. ) that risk management that seeks to reduce the volatility of share returns is known as hedging. This variable was also used by Batta et al. (2016Batta, G. E., Qiu, J., & Yu, F. (2016). Credit derivatives and analyst behavior. The Accounting Review, 91(5), 1315-1343. ). |
Company betas Covariance (assets, Ibovespa)/variance Ibovespa) |
It is the CAPM β estimated based on the daily shares returns. Variable previously used by Hentschel and Kothari (2001Hentschel, L., & Kothari, S. P. (2001). Are corporations reducing or taking risks with derivatives? Journal of Financial and Quantitative Analysis, 36(1), 93-118. ) and Cheng and Subramanyam (2008Cheng, M., & Subramanyam, K. R. (2008). Analyst following and credit ratings. Contemporary Accounting Research, 25(4), 1007-1044. ). |
Derivatives use |
Use of derivative financial instruments (User) |
Dummy variable that represents the use of one of the derivative types (term, future, swap, and options), it was previously used by Hentschel and Kothari (2001Hentschel, L., & Kothari, S. P. (2001). Are corporations reducing or taking risks with derivatives? Journal of Financial and Quantitative Analysis, 36(1), 93-118. ) and, similarly, by Batta et al. (2016Batta, G. E., Qiu, J., & Yu, F. (2016). Credit derivatives and analyst behavior. The Accounting Review, 91(5), 1315-1343. ). In addition, the studies from Guay (1999Guay, W. R. (1999). The impact of derivatives on firm risk: An empirical examination of new derivative users1. Journal of Accounting and Economics, 26(1-3), 319-351. ), Donohoe (2015Donohoe, M. P. (2015). The economic effects of financial derivatives on corporate tax avoidance. Journal of Accounting and Economics, 59(1), 1-24. ), and Chang et al. (2016Chang, H. S., Donohoe, M., & Sougiannis, T. (2016). Do analysts understand the economic and reporting complexities of derivatives? Journal of Accounting and Economics, 61(2-3), 584-604. ) also made similar categorizations. A value of 1 was attributed to companies that made use of the financial instruments in a particular quarter and 0 to those that did not use them. |
Notional value of the derivatives/total assets |
Used by Hentschel and Kothari (2001Hentschel, L., & Kothari, S. P. (2001). Are corporations reducing or taking risks with derivatives? Journal of Financial and Quantitative Analysis, 36(1), 93-118. ), it aims to identify the amount of value of a derivative contract in the perception of credit rating agencies. The notional value is represented by the contractual value established at the start of the contract converted into domestic currency (BRL). |