Predicting Financial Failure and Bankruptcy

Abstract

Financial failure has various hidden reasons in corporate firms' life cycles, and finding the symptoms of financial sickness is becoming crucial in worldwide economies. There are many studies and models used in the literature conducted on different variables, sectors, and economies. The most common methods and models used in the bankruptcy area come out to be the logistic regression (LOGIT) and neural network. Altman model is preferably used in most of the bankruptcy prediction studies conducted with different financial indicators. Among important indicators are solvency, profitability, and liquidity. Multiple discriminant analysis (MDA) model and MDA and Z-score and support vector machine are used as alternatives. Artificial intelligence and machine learning models are becoming popular. Literature shows that Altman model is preferably used in most of the bankruptcy prediction studies.