Predicting corporate bankruptcy using a self-organizing map: An empirical study to improve the forecasting horizon of a financial failure model

du Jardin, Philippe and Séverin, Eric (2011): Predicting corporate bankruptcy using a self-organizing map: An empirical study to improve the forecasting horizon of a financial failure model. Published in: Decision Support Systems , Vol. 51, No. 3 (2011): pp. 701-711.

Abstract

The aim of this study is to show how a Kohonen map can be used to increase the forecasting horizon of a financial failure model. Indeed, most prediction models fail to forecast accurately the occurrence of failure beyond one year, and their accuracy tends to fall as the prediction horizon recedes. So we propose a new way of using a Kohonen map to improve model reliability. Our results demonstrate that the generalization error achieved with a Kohonen map remains stable over the period studied, unlike that of other methods, such as discriminant analysis, logistic regression, neural networks and survival analysis, traditionally used for this kind of task.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial failure prediction; Self-organizing map; Forecasting horizon
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy ; Liquidation

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