Discovering causes of financial distress by combining evolutionary algorithms and artificial neural networks

Abstract

In this work we compare two soft-computing methods for producing models that are able to predict whether a company is going to have book losses: artificial neural networks (ANNs) and genetic programming (GP). In order to build prediction models that can be applied to an extensive number of practical cases, we need simple models which require a small amount of data. Kohonen's self-organizing map (SOM) is a non-supervised neural network that is usually used as a clustering tool. In our case a SOM has been used to reduce the dimensions of the prediction problem. Traditionally, ANNs have been considered able to produce better classifier structures than GP. In this work we merge the capability of GP for generating classification trees and the feature extraction abilities of SOM, obtaining a classification tool that beats the results yielded using an evolutionary ANN method.

Balancing Techniques for Advanced Financial Distress Detection Using Artificial Intelligence

“…Hiring ratio [77]; Number of employees [4,73,94,114,115]; Number of employees representatives on board [88]; Sales per employee (SPE) [104]; Unemployment rate of firm's department [94]; Working capital per employee [94].…”

“…Judicial incidents: Amount of money spent on judicial incidences (since the company was created) [4,73,108]; Amount of money spent on judicial incidences (Last year) [4,73,108]; Asset restructuring|replacement [58]; Dishonest debtor [58]; Equity transfer [58]; Executions enforced by the court [58]; Litigation [109]; Lawsuits (as defendant or plaintiff) [58]; Lawsuits type (corporate lending, breaching of contract, etc.) [58]; Number of judicial incidences(since the company was created) [4,73]; Number of judicial incidences (Last year) [4,73]; Previous patent applications [107].…”

“…However, only 53 ratios were used for predicting firm failure, which were selected using a two-sample t-test. In general, researchers use approximately 20-30 financial ratios for financial distress identification [3,26,66,[71][72][73][74]. Of course, researchers are adding not only financial indicators, but other novel features that can be categorized as macro indicators, industry indicators, and additional indicators.…”

“…However, it remains unclear where the optimal set is if the RF method ranks all provided features. Audit fees [109]; Delay of annual reports [73,96]; Competitiveness [87,91]; Credibility [91]; Innovation [77,87,107]; Intellectual capital [92,110]; Location|Region [77,87,93]; Linked to a group (if the company is part of a group holding) [4,73]; Market (local, national, international) [77,87]; Number of business segments [90]; Number of changes of location [4,73]; Number of partners [4,73]; Relational capital| public contract and political connections [68,77,106]; Operation information changes [55]; Quality certificate (internationally recognized) [87]; Risk committee [109]; Size: (a) The log of the total assets; (b) Natural logarithm of turnover; (c) The market capitalization; (d) Micro|Small|Medium|Large [4,8,33,38,67,73,85,89,97,100]; Tax aggressiveness [111,112]; Type of company (public companies|Limited liability companies (Ltd))|Others) [4,73,…”

Análisis combinado de factores del fracaso empresarial en el sector turístico español

“…Adicionalmente, los trabajos a nivel microeconómico han tratado de analizar los efectos netos de determinados datos financieros sobre la probabilidad de quiebra. Sin embargo, el fracaso empresarial es un fenómeno complejo de relaciones entre factores (Mora Garcia et al, 2008) donde el efecto combinado de los mismos es más relevante que cada uno a nivel particular. De ahí que nuestro artículo plantee, como una alternativa novedosa a los métodos tradicionales, el análisis cualitativo comparativo de conjuntos difusos (fuzzy set Qualitative Comparative Analysis, fsQCA) propuesto por Ragin (1987), en consonancia con Pozuelo Campillo que afirma que "dada la novedad y bondad de la metodología (fsQCA) se considera TRIBUNA -4-Mendaña-Cuervo C., Remo-Diez N., Toral-Heredia M. Análisis combinado de factores del fracaso empresarial en el sector turístico español interesante seguir aplicándola en estudios de fracaso empresarial en pymes, en general y por sectores de actividad, tanto a nivel nacional como europeo" (2023, p. 201).…”