Credit Rating of Companies Listed on Tehran Stock Exchange Using the EMS Approach

This research paper aims to determine credit ratings of Tehran stock exchange companies listed between 1388 and 1392 using a scoring system named EMS approach. The EMS approach is an enhanced version of Altman Z-Score model (Altman, 1968). Unlike the original Z-Score model, the EMS approach can be applied to manufacturing, non manufacturing, privately held and publicly owned firms in developed or emerging markets. This approach incorporates particular credit characteristics of emerging markets’ companies, and is a suitable tool for determining their credit ratings. The EMS approach combines fundamental credit analysis and rigorous benchmarks to reach a modified rating, which can then be compared to agency ratings and market levels. According to surveys and with regard to financial information of companies subject to article 141 of Iran’s commerce law, we found that during research time period, the EMS approach could classify failed companies (subject to article 141) with more than 96 percent accuracy. Results indicated that some of sample companies listed on Tehran stock exchange were financially distressed or in grey zone, and this could be considered by investors and lenders.