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II: Financial Applications > Chapter 10: Bankruptcy Prediction

Chapter 10

Bankruptcy Prediction

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Predicting whether a firm will go bankrupt is quite important to the firm’s auditors, creditors, and stockholders. However, even auditors, who should best know a firm’s situation, often fail to see an impending bankruptcy [McKee, 2003]. So several models have been developed to predict the likelihood of bankruptcy from information about a firm. These include models based on simple univariate analysis [Beaver, 1966], logistic regression [Ohlson, 1980], neural networks [Tam and Kiang, 1992], genetic programming [McKee and Lensberg, 2002], and Bayesian networks [Sarkar and Sriram, 2001], [Sun and Shenoy, 2006]. We show the work in [Sun and Shenoy, 2006] as it carefully provides guidance in the selection of variables and the discretization of continuous variables.


  

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