The purpose of this study is to determine the effect of grade inflation in prerequisite courses on student performance in business finance. Some studies indicate that performance in business finance can be affected by performance in prerequisite courses. The ordered-probit regression model is employed to analyze a sample of 229 students during the period from 2005 to 2009. The results indicate that students who earned higher grades in prerequisite mathematics and economics courses are more likely to perform better in business finance. Grade inflation generally is not a significant determinant in explaining student performance in business finance. However, students who received highly curved grades in financial accounting are more likely to perform better in business finance. The results suggest that the quantitative knowledge that students obtain prior to the business finance course has an impact on their performance in the course. Grade inflation in the prerequisite courses except for financial accounting does not seem to affect student performance in finance. Business students should be serious about the quantitative-oriented prerequisite coursework. Instructors should constantly improve their teaching skills, and administrators should maintain the rigor of curriculum and provide instructors with necessary support to help business students to complete the program successfully.

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