Establishment of a Financial Crisis Early Warning System for Domestic Listed Companies Based on Three Decision Tree Models

Gang Wang,Yingying Zhou,Xiaoyan Mo,Keming Wang,Weilin Xiao

doi:10.1155/2020/8036154

Abstract

The financial crisis is a realistic problem that the general enterprise must encounter in the process of financial management. Due to the impact of the COVID-19 and the Sino-US trade war, domestic companies with unsound financial conditions are at risk of shutdowns and bankruptcies. Therefore, it is urgently needed to study the financial warning of enterprises. In this study, three decision tree models are used to establish the financial crisis early warning system. These three decision tree models include C50, CART, and random forest decision trees. In addition, the ROC curve was used for comprehensive evaluation of the accuracy analysis of the model to confirm the predictive ability of each model. This result can provide reference for domestic financial departments and provide financial management basis for the investing public.

Highlights

With the continuous improvement of enterprise development capabilities, diversified investment has become an important mode for many enterprises to carry out investment activities, which plays an important supporting role in promoting the continuous development and growth of enterprises
In the current situation of the COVID-19 epidemic and the Sino-US trade war environment, it is important for investors and relevant government departments to grasp the viability of enterprises. is requires enterprises to deeply understand the series of financial risks they may face and take practical and effective measures to vigorously strengthen the early warning and prevention of financial risks and promote the diversified investment of enterprises to achieve tangible results
Taking big data and finance as the fundamental entry point, this paper actively finds out the deficiencies of the early warning system of enterprise financial risk under the background of big data and aims to improve it

Summary

Introduction

With the continuous improvement of enterprise development capabilities, diversified investment has become an important mode for many enterprises to carry out investment activities, which plays an important supporting role in promoting the continuous development and growth of enterprises. Most of them use mathematics or statistics to establish models for prediction and analysis, so as to discover the financial crisis in the process of enterprise management, give early warning to the operation and management of listed companies before the crisis, and take measures to prevent the crisis from happening. E packaging and whitewashing of the company’s financial statements will seriously distort the information and make the predicted results inconsistent with the actual results Like this type of enterprise, the early warning results do not have the risk of financial crisis, it deserves our special attention. This article will discuss three decision tree models, including C50, CART, and random forest decision tree, analyze the financial crisis prediction of 168 listed enterprises, and use modeling and cross-validation methods to test the accuracy of the model. Conclusions and recommendations will be made for the overall study

Literature Review

Research Methods and Indicators

Findings

Empirical Analysis