Prediction of bankruptcy Iranian corporations through artificial neural network and Probit-based analyses

Abstract

In this study, multilayer perceptron (MLP) of artificial neural networks is utilized to build a new model for bankruptcy prediction. A precise MLP-based relationship is obtained to classify samples of 136 bankrupt and non-bankrupt Iranian corporations using their financial ratios. A Probit analysis is performed to benchmark the MLP model. Ratios of sales to current assets ratio, operational income to sales, quick assets to total assets, and total liability to total assets are used as the effective predictive financial ratios. A comparative study is further conducted on the classification accuracy of the MLP, Probit, and other existing models. The proposed MLP model has a significantly better performance than the Probit and other models found in the bankruptcy prediction literature.