Bankruptcy prediction in firms with statistical and intelligent techniques and a comparison of evolutionary computation approaches

In this paper, we compare some traditional statistical methods for predicting financial distress to some more “unconventional” methods, such as decision tree classification, neural networks, and evolutionary computation techniques, using data collected from 200 Taiwan Stock Exchange Corporation (TSEC) listed companies. Empirical experiments were conducted using a total of 42 ratios including 33 financial, 8 non-financial and 1 combined macroeconomic index, using principle component analysis (PCA) to extract suitable variables.This paper makes four critical contributions: (1) with nearly 80% fewer financial ratios by the PCA method, the prediction performance is still able to provide highly-accurate forecasts of financial bankruptcy; (2) we show that traditional statistical methods are better able to handle large datasets without sacrificing prediction performance, while intelligent techniques achieve better performance with smaller datasets and would be adversely affected by huge datasets; (3) empirical results show that C5.0 and CART provide the best prediction performance for imminent bankruptcies; and (4) Support Vector Machines (SVMs) with evolutionary computation provide a good balance of high-accuracy short- and long-term performance predictions for healthy and distressed firms. Therefore, the experimental results show that the Particle Swarm Optimization (PSO) integrated with SVM (PSO-SVM) approach could be considered for predicting potential financial distress.     

AdaBoost ensemble for financial distress prediction: An empirical comparison with data from Chinese listed companies

Due to the important role of financial distress prediction (FDP) for enterprises, it is crucial to improve the accuracy of FDP model. In recent years, classifier ensemble has shown promising advantage over single classifier, but the study on classifier ensemble methods for FDP is still not comprehensive enough and leaves to be further explored. This paper constructs AdaBoost ensemble respectively with single attribute test (SAT) and decision tree (DT) for FDP, and empirically compares them with single DT and support vector machine (SVM). After designing the framework of AdaBoost ensemble method for FDP, the article describes AdaBoost algorithm as well as SAT and DT algorithm in detail, which is followed by the combination mechanism of multiple classifiers. On the initial sample of 692 Chinese listed companies and 41 financial ratios, 30 times of holdout experiments are carried out for FDP respectively one year, two years, and three years in advance. In terms of experimental results, AdaBoost ensemble with SAT outperforms AdaBoost ensemble with DT, single DT classifier and single SVM classifier. As a conclusion, the choice of weak learner is crucial to the performance of AdaBoost ensemble, and AdaBoost ensemble with SAT is more suitable for FDP of Chinese listed companies.     

Forecasting financial condition of Chinese listed companies based on support vector machine

Due to the radical changing and specialty of Chinese capital market, it is challenging to develop a powerful financial distress prediction model. In this paper, we first analyzed the feasibility of Chinese special-treated companies as distressed sample by using statistical methods. Then we developed a prediction model based on support vector machines (SVM) for an unmatched sample of Chinese high-tech manufacture companies. The grid-search technique using 10-fold cross-validation is used to find out the best parameter value of kernel function of SVM. The experiment results show that the proposed SVM model outperforms conventional statistical methods and back-propagation neural network. In general, SVM provides a robust model with high prediction accuracy for forecasting financial distress of Chinese listed companies. It is also suggested that Chinese special-treated event adopted as cut-off line has some effect on the prediction accuracy of the models.     

财务困境预测模型与仿真研究

公司财务困境受到决策者、市场、经济和政策多种因素影响,针对传统预测方法预测精度低缺陷,提出了一种贝叶斯判别分析的财务困境预测方法。首先选用了反映公司财务状况的24个指标作判别因子,建立了公司财务困境的贝叶斯判别分析模型,然后采用85个上市公司的实际数据作为学习样本建立贝叶斯判别函数,以交差确认估计法对判别准则进行评价,以验证模型的有效性,最后利用判别函数对5个待评价公司进行预测,得到判别函数值,进行仿真。结果表明,采用贝叶斯判别分析模型提高了公司财务困境的预测精度,是一种有效的财务困境预测方法。     

基于集成学习的上市公司高送转预测实证研究

我国证券市场中高送转题材股备受中小投资者的追捧,但市场中也存在着借高送转概念炒作的乱象,如何利用上市公司的财务数据挖掘真正有潜力的股票无疑具有重要意义。采用2?158家制造业上市公司7年的财务指标作为研究数据,利用采样、特征选择以及集成学习算法构建上市公司高送转预测模型并进行实证研究。结果显示：采样和特征选择方法均能有效提高集成预测模型的性能;相较于数据集中的冗余信息,数据不平衡问题对模型预测准确率的影响更显著;ADASYN+mRMR+XGBoost组合模型取得了最好的预测结果,高送转样本的分类准确率达到84.96%,建议投资者优先选用该组合模型对上市公司的高送转情况进行预测。     

SFFS-PC-NN optimized by genetic algorithm for dynamic prediction of financial distress with longitudinal data streams

Recently, research of financial distress prediction has become increasingly urgent. However, existing static models for financial distress prediction are not able to adapt to the situation that the sample data flows constantly with the lapse of time. Financial distress prediction with static models does not meet the demand of the dynamic nature of business operations. This article explores the theoretical and empirical research of dynamic modeling on financial distress prediction with longitudinal data streams from the view of individual enterprise. Based on enterprise’s longitudinal data streams, dynamic financial distress prediction model is constructed by integrating financial indicator selection by using sequential floating forward selection method, dynamic evaluation of enterprise’s financial situation by using principal component analysis at each longitudinal time point, and dynamic prediction of financial distress by using back-propagation neural network optimized by genetic algorithm. This model’s ex-ante prediction efficiently combines its ex-post evaluation. In empirical study, three listed companies’ half-year longitudinal data streams are used as the sample set. Results of dynamic financial distress prediction show that the longitudinal and dynamic model of enterprise’s financial distress prediction is more effective and feasible than static model.     

基于MCP惩罚的群组变量选择和AdaBoost集成剪枝

针对高维群组变量下的分类问题,本文提出了一种基于MCP惩罚的AdaBoost集成剪枝逻辑回归模型(AdaMCPLR),将MCP函数同时应用于特征选择和集成剪枝,在简化模型的同时有效地提升了预测精度.由于传统的坐标下降算法效率较低,本文引用并改进了PICASSO算法使其能够应用于群组变量选择,大大提高了模型的求解效率.通过模拟实验,发现AdaMCPLR方法的变量选择和分类预测效果均优于其他预测方法.最后,本文将提出的AdaMCPLR方法应用于我国上市公司财务困境预测中.     

基于小波神经网络的上市公司财务危机预测①

提出了基于小波神经网络的上市公司财务危机预测模型,分析了公司财务指标的选取方法。小波神经网络的训练采用自适应调整学习率及动量系数的方法,以避免陷入局部极小值。与多元统计方法、Logit及Probit模型进行比较,结果表明,该方法预测精度高,第一类错误及第二类错误显著减小。     

基于网络的上市公司财务危机预测模型

结合上市公司的实际财务数据,基于RS理论进行财务指标筛选,并以此作为建模变量,构造了基于BP网络的财务危机预测模型。并对因财务状况异常而被特别处理(ST)的公司进行预测,结果表明,该模型对上市公司因财务状况异常而被特别处理这一事件提前两年的预测精度达93.3%。     

Financial distress prediction based on OR-CBR in the principle of k-nearest neighbors

Financial distress prediction including bankruptcy prediction has called broad attention since 1960s. Various techniques have been employed in this area, ranging from statistical ones such as multiple discriminate analysis (MDA), Logit, etc. to machine learning ones like neural networks (NN), support vector machine (SVM), etc. Case-based reasoning (CBR), which is one of the key methodologies for problem-solving, has not won enough focus in financial distress prediction since 1996. In this study, outranking relations (OR), including strict difference, weak difference, and indifference, between cases on each feature are introduced to build up a new feature-based similarity measure mechanism in the principle of k-nearest neighbors. It is different from traditional distance-based similarity mechanisms and those based on NN, fuzzy set theory, decision tree (DT), etc. Accuracy of the CBR prediction method based on OR, which is called as OR-CBR, is determined directly by such four types of parameters as difference parameter, indifference parameter, veto parameter, and neighbor parameter. It is described in detail that what the model of OR-CBR is from various aspects such as its developed background, formalization of the specific model, and implementation of corresponding algorithm. With three year’s real-world data from Chinese listed companies, experimental results indicate that OR-CBR outperforms MDA, Logit, NN, SVM, DT, Basic CBR, and Grey CBR in financial distress prediction, under the assessment of leave-one-out cross-validation and the process of Max normalization. It means that OR-CBR may be a preferred model dealing with financial distress prediction in China.     

The application of brute force logistic regression to corporate credit scoring models: Evidence from Serbian financial statements

In this paper a brute force logistic regression (LR) modeling approach is proposed and used to develop predictive credit scoring model for corporate entities. The modeling is based on 5 years of data from end-of-year financial statements of Serbian corporate entities, as well as, default event data. To the best of our knowledge, so far no relevant research about predictive power of financial ratios derived from Serbian financial statements has been published. This is also the first paper that generated 350 financial ratios to represent independent variables for 7590 corporate entities default predictions’. Many of derived financial ratios are new and were not discussed in literature before. Weight of evidence (WOE) method has been applied to transform and prepare financial ratios for brute force LR fitting simulations. Clustering method has been utilized to reduce long list of variables and to remove highly correlated financial ratios from partitioned training and validation datasets. The clustering results have revealed that number of variables can be reduced to short list of 24 financial ratios which are then analyzed in terms of default event predictive power. In this paper we propose the most predictive financial ratios from financial statements of Serbian corporate entities. The obtained short list of financial ratios has been used as a main input for brute force LR model simulations. According to literature, common practice to select variables in final model is to run stepwise, forward or backward LR. However, this research has been conducted in a way that the brute force LR simulations have to obtain all possible combinations of models that comprise of 5–14 independent variables from the short list of 24 financial ratios. The total number of simulated resulting LR models is around 14 million. Each model has been fitted through extensive and time consuming brute force LR simulations using SAS® code written by the authors. The total number of 342,016 simulated models (“well-founded” models) has satisfied the established credit scoring model validity conditions. The well-founded models have been ranked according to GINI performance on validation dataset. After all well-founded models have been ranked, the model with highest predictive power and consisting of 8 financial ratios has been selected and analyzed in terms of receiver-operating characteristic curve (ROC), GINI, AIC, SC, LR fitting statistics and correlation coefficients. The financial ratio constituents of that model have been discussed and benchmarked with several models from relevant literature.     

Ratio Selection for Classification Models

This paper is concerned with the selection of inputs for classification models based on ratios of measured quantities. For this purpose, all possible ratios are built from the quantities involved and variable selection techniques are used to choose a convenient subset of ratios. In this context, two selection techniques are proposed: one based on a pre-selection procedure and another based on a genetic algorithm. In an example involving the financial distress prediction of companies, the models obtained from ratios selected by the proposed techniques compare favorably to a model using ratios usually found in the financial distress literature.     

MCELCCh-FDP: Financial distress prediction with classifier ensembles based on firm life cycle and Choquet integral

Financial distress prediction (FDP) has always been an important issue in the business and financial management. This research proposed a novel multiple classifier ensemble model based on firm life cycle and Choquet integral for FDP, named MCELCCh-FDP, as a new approach to tackle with financial distress. Empirical study based on Chinese listed companies’ real data is conducted, and the results show that the proposed MCELCCh-FDP model has higher prediction accuracy than single classifiers. In order to verify the prediction capability of firm life cycle and Choquet integral in FDP model, comparative analysis is conducted. The experiment results indicate that the introduction of firm life cycle and Choquet integral in FDP can greatly enhance prediction accuracy.     

基于新闻文本的上市公司财务困境组合预测模型

已有上市公司财务困境预测模型主要是基于结构化数据进行研究,为进一步提高上市公司财务困境预测模型准确率,本文将非结构化数据引入上市公司财务困境预测问题中,研究了基于新闻文本分类的上市公司财务困境预测模型,结合新闻文本信息和财务信息提出上市公司财务困境组合预测模型。本文首先将新闻数据进行预处理,然后基于新闻文本数据通过支持向量机（SVM）进行财务困境预测,同时基于财务数据通过Logistic模型进行财务困境预测,最后采用阈值表决集成策略整合两种模型的预测结果,实验结果证明了模型的有效性。     

基于改进FOA算法的上市公司Z-Score模型财务预警

为了提高传统Z-Score财务预警模型的预警能力,本文将改进FOA算法的良好寻优能力和Z-Score财务预警模型相结合,提出了一种改进FOA算法的上市公司Z-Score财务预警模型.采用改进FOA算法来优化Z-Score模型的参数,降低预测值和目标值之间的均方根误差（RMSE）.经对选取上市公司财务数据的预测值和目标值对比,且检验其准确率.实验结果：传统的Z-Score模型、基本FOA算法优化Z-Score模型和改进FOA算法优化Z-Score模型的预测准确率分别为65%、70%和80%.实验表明改进的算法较大提升了Z-Score财务预警模型的预测能力,也表明了该算法的有效性.     

Financial failure prediction using efficiency as a predictor

Corporate financial failure prediction is of critical importance for decision making of managers, investors and shareholders. In current financial failure prediction models, various financial ratios are usually selected as prediction variables, which implicates that these financial ratios represent the possible cause of financial failure. It is widely recognized that a main cause of financial failure is poor management, and that business operation efficiency is a good reflection of a firm’s management. In this paper, we propose a financial failure prediction model using efficiency as a predictor variable. In the proposed method, data envelopment analysis (DEA) are employed as a tool to evaluate the input/output efficiency of each corporation. To verify the efficacy of efficiency as a predictor, we use the data of corporations listed in Shanghai stock exchange (SSE), and compare the accuracy of the same prediction method with and without the variable. Experimental results of three main financial failure prediction models, i.e., multiple discriminant approach (MDA), logistic regression, and support vector machines (SVMs), all suggest that efficiency is an effective predictor variable.     

Predicting financial distress of the South Korean manufacturing industries

The financial distress forecasting has long been of great interest both to scholars and practitioners. The financial distress forecasting is basically a dichotomous decision, either being financial distress or not. Most statistical and artificial intelligence methods estimate the probability of financial distress, and if this probability is greater than the cutoff value, then the prediction is to be financial distress. To improve the accuracy of the financial distress prediction, this paper first analyzed the yearly financial data of 1888 manufacturing corporations collected by the Korea Credit Guarantee Fund (KODIT). Then we developed a financial distress prediction model based on radial basis function support vector machines (RSVM). We compare the classification accuracy performance between our RSVM and artificial intelligence techniques, and suggest a better financial distress predicting model to help a chief finance officer or a board of directors make better decision in a corporate financial distress. The experiments demonstrate that RSVM always outperforms other models in the performance of corporate financial distress predicting, and hence we can predict future financial distress more correctly than any other models. This enhancement in predictability of future financial distress can significantly contribute to the correct valuation of a company, and hence those people from investors to financial managers to any decision makers of a company can make use of RSVM for the better financing and investing decision making which can lead to higher profits and firm values eventually.     

基于支持向量机的股票预测

针对股票预测的特点,选择对上市公司股票走势有重要影响的相关数据进行测试。为了避免传统的预测算法(如BP算法)的一些弊端,使用可以避免这些弊端并且具有良好分类功能的支持向量机对该上市公司股票走势进行预测。测试表明预测的精度明显高于采用BP算法等传统神经网络分类方法的测试结果,预测达到了让人满意的效果。     

基于GA-SVM的企业财务困境预测

通过遗传算法结合支持向量机算法中期望风险边界,对我国上市公司财务数据进行特征提取,并优化构造广义最优分类超平面,从而获得具有较好整体预测性能的联合模型。数值实验表明,该方法可以降低特征空间维数,具有较好的分类准确率。实证结果表明,GA-SVM联合预测模型具有可靠的预测财务困境能力,有着良好的应用前景。