An Ensemble Classifier-Based Scoring Model for Predicting Bankruptcy of Polish Companies in the Podkarpackie Voivodeship

Tomasz Pisula

doi:10.3390/jrfm13020037

Abstract

This publication presents the methodological aspects of designing of a scoring model for an early prediction of bankruptcy by using ensemble classifiers. The main goal of the research was to develop a scoring model (with good classification properties) that can be applied in practice to assess the risk of bankruptcy of enterprises in various sectors. For the data sample, which included 1739 Polish businesses (of which 865 were bankrupt and 875 had no risk of bankruptcy), a genetic algorithm was applied to select the optimum set of 19 bankruptcy indicators, on the basis of which the classification accuracy of a number of ensemble classifier model variants (boosting, bagging and stacking) was estimated and verified. The classification effectiveness of ensemble models was compared with eight classical individual models which made use of single classifiers. A GBM-based ensemble classifier model offering superior classification capabilities was used in practice to design a scoring model, which was applied in comparative evaluation and bankruptcy risk analysis for businesses from various sectors and of different sizes from the Podkarpackie Voivodeship in 2018 (over a time horizon of up to two years). The approach applied can also be used to assess credit risk for corporate borrowers.

Highlights

According to statistical data from 2018–2019, 30–60 businesses in Poland announce bankruptcy each month
Based on the analysis of the value of the probability of bankruptcy (Figure 14) of the enterprises surveyed in the Podkarpackie Voivodeship in individual sectors of their business activity and on the basis of an analysis of their predicted belonging to three Bankruptcy risk classes (Table 4), the following comparative analysis can be carried out assessing the exposure to bankruptcy risk of enterprises operating in the region in 2018 in view of their potential bankruptcy by 2020
The results of the analyses presented in the paper lead to several general conclusions that can be a summary of the research:

Summary

Introduction

According to statistical data from 2018–2019, 30–60 businesses in Poland announce bankruptcy each month. The high number of bankruptcies reported may lead to negative consequences locally—for the economic development and economic circumstances of the region—and on the national scale—for the economy of the whole country. For this reason, the issue of early prediction of business bankruptcy, and the possibility of forecasting the risk of business bankruptcy over a long time horizon (even up to several years), is a very important financial and economic problem. In its financial and economic dimension, bankruptcy (i.e., business default) is defined as a situation in which a business is unable (for various reasons) to meet its liabilities towards creditors. The subject of modeling risk of bankruptcy is of enormous importance for institutions granting corporate loans, to whom the bankruptcy of a corporate debtor means a potential loss of the loan granted

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