Standardized strategy assessment as a contributionto banks’ corporate ratings

The assessment of strategic opportunities and threats has been a key element of corporate ratings to assess companiesfor their current and in particular future creditworthiness since the enforcement of the new capital regulations for issuingloans in Europe (Basel II). The existing, often inaccurate statement of strategic criteria which is in strong contrastto the high requirements for standardization in rating models is particularly problematic when considering these strategicaspects. Although a wide range of models already exist to analyze the current financial, profit and liquidity situation,they frequently only reveal the consequences of potential strategies. In contrast, models that are better suited toassessing key strategic issues are often inadequately applied as effective approaches are lacking. It is essential to firstlyidentify and systemize the most important information before developing a suitable framework for assessing the strategy.Then this information must be made assessable in a standardized form. Our contribution is a framework for thestrategic analysis of the corporate environment that includes internal strengths as well as external opportunities andthreats in a simple, standardized way. The resulting 17 strategic indicators are integrated into a structure equationmodel that is used to empirically test the interaction postulated in advance between the indicators and strategy assessment.The resulting model not only explains just under 50% of the strategic positioning rating by the companies’ ownmanaged but also provides statements on the importance and interaction of various strategic influencing factors.