A Data Envelopment Analysis of Shipping Industry Bond Ratings

Industrial corporate bonds have been assigned quality ratings since the early 1900s. Moody and Standard & Poors (S&P), two renowned ratings organizations assign ratings to a portion of new bonds issued each year. However, many businesses and industry leaders have doubts about the consequences of bond ratings. This paper attempts to build an objective and user-friendly bond ratings approach for the shipping industry and investors. Data envelopment analysis (DEA) is employed to evaluate the corporate bond ratings of Taiwan's shipping industry from 1997 to 2004, by applying two input variables 9fixed assets and debt ratio) and two output variables 9fixed assets turnover and times interest earned) as rating factors. The results show that 4 different bonds, in particular, have had relatively high ratings: ETITC's issue of bonds from 1998 to 2003, EVERGREEN's bond issue in 1996, and Yang Ming's bond issue in 2003, respectively. This paper also illustrates that ETITC and Yang Ming have paid more attention on reducing default risks and creating revenue competency during the given time period.