Role and Significance of Credit Rating with Special Reference to Indian Retail Equity Investor: An Empirical Investigation

Abstract

Credit rating provides analytical assistance to the potential investors on the extent of risk involved in the appropriate repayment of principal and interest. Credit rating is a basis of reliable information for many users as rated instruments highlight the company's financial health. Rating gives advanced information about the rated product at low cost to the investor. This study highlights as to how the retail equity investors could enhance their participation in the stock market by relying on the information dished out by the credit rating agencies. The methodology of the study is based on primary data collected through well-structured questionnaire to elicit the perception of retail investors on the usefulness of credit rating. Factor analysis by principal component method, has been applied to reduce the number of usage related variables among the retail equity investor into four meaningful factors and benefit of ratings related variables into three meaningful factors. Multiple regression analysis has been employed to establish the influence of usage of the ratings among the retail equity investor on the benefit of rating by the retail equity investor. Results reveal that credit rating acts as the information gap-builder for investors besides serving the public good. The retail equity investors are indeed found to be highly benefited by the way of adequate disclosure of relevant information. Credit rating agencies play a significant part in providing one source of information that aids accuracy and market capability, thereby plummeting the imbalance of information among the stock market investors.