Financial failure prediction using efficiency as a predictor

摘要

Corporate financial failure prediction is of critical importance for decision making of managers, investors and shareholders. In current financial failure prediction models, various financial ratios are usually selected as prediction variables, which implicates that these financial ratios represent the possible cause of financial failure. It is widely recognized that a main cause of financial failure is poor management, and that business operation efficiency is a good reflection of a firm’s management. In this paper, we propose a financial failure prediction model using efficiency as a predictor variable. In the proposed method, data envelopment analysis (DEA) are employed as a tool to evaluate the input/output efficiency of each corporation. To verify the efficacy of efficiency as a predictor, we use the data of corporations listed in Shanghai stock exchange (SSE), and compare the accuracy of the same prediction method with and without the variable. Experimental results of three main financial failure prediction models, i.e., multiple discriminant approach (MDA), logistic regression, and support vector machines (SVMs), all suggest that efficiency is an effective predictor variable.