Financial distress prediction using the hybrid associative memory with translation

This paper presents an alternative technique for financial distress prediction systems. The method is based on a type of neural network, which is called hybrid associative memory with translation. While many different neural network architectures have successfully been used to predict credit risk and corporate failure, the power of associative memories for financial decision-making has not been explored in any depth as yet. The performance of the hybrid associative memory with translation is compared to four traditional neural networks, a support vector machine and a logistic regression model in terms of their prediction capabilities. The experimental results over nine real-life data sets show that the associative memory here proposed constitutes an appropriate solution for bankruptcy and credit risk prediction, performing significantly better than the rest of models under class imbalance and data overlapping conditions in terms of the true positive rate and the geometric mean of true positive and true negative rates.This work has partially been supported by the Mexican CONACYT through the Postdoctoral Fellowship Program [232167], the Spanish Ministry of Economy [TIN2013-46522-P], the Generalitat Valenciana [PROMETEOII/2014/062] and the Mexican PRODEP [DSA/103.5/15/7004]. We would like to thank the Reviewers for their valuable comments and suggestions, which have helped to improve the quality of this paper substantially

An estimation of the default probabilities of Spanish non-financial corporations and their application to evaluate public policies

Este documento modeliza la probabilidad de impago a un año de las sociedades no financieras españolas utilizando información del período 1996-2019. Mientras que, en general, la literatura previa considera que una empresa está en situación de impago si solicita concurso de acreedores, aquí se define dicha situación como tener préstamos dudosos durante al menos tres meses en un mismo año. Esta definición más amplia permite predecir problemas financieros en una fase más temprana, antes de que estos sean demasiado graves y las empresas tengan que recurrir a procedimientos formales de insolvencia o a reestructuraciones privadas de deuda, lo que generalmente no puede ser observado por el investigador. En concreto, se estiman mediante regresiones logísticas tanto un modelo general que hace uso de todas las empresas de la muestra como seis modelos para diferentes combinaciones de tamaño y sector productivo. Las variables explicativas seleccionadas son cinco ratios financieras, que resumen la calidad crediticia de las empresas, y el crecimiento agregado del crédito a las sociedades no financieras para capturar el papel de la disponibilidad de crédito en mitigar el riesgo de impago. Finalmente, se llevan a cabo dos aplicaciones prácticas de estos modelos de predicción: se construyen matrices de transición de calificaciones crediticias y se evalúa el programa de ayudas directas del Gobierno español durante la crisis del COVID-19.We model the one-year ahead probability for default of Spanish non-financial corporations using data for the period 1996-2019. While most previous literature considers that a firm is in default if it files for bankruptcy, we define default as having non-performing loans during at least three months of a given year. This broader definition allows us to predict firms’ financial distress at an earlier stage that cannot generally be observed by researchers, before their financial conditions become too severe and they have to file for bankruptcy or engage in private workouts with their creditors. We estimate, by means of logistic regressions, both a general model that uses all the firms in the sample and six models for different size-sector combinations. The selected explanatory variables are five accounting ratios, which summarise firms’ creditworthiness, and the growth rate of aggregate credit to non-financial corporations, to take into account the role of credit availability in mitigating the risk of default. Finally, we carry out two applications of our prediction models: we construct credit rating transition matrices and evaluate a programme implemented by the Spanish government to provide direct aid to firms severely affected by the COVID-19 crisis

Using Random Forests to Describe Equity in Higher Education: A Critical Quantitative Analysis of Utah’s Postsecondary Pipelines

The following work examines the Random Forest (RF) algorithm as a tool for predicting student outcomes and interrogating the equity of postsecondary education pipelines. The RF model, created using longitudinal data of 41,303 students from Utah\u27s 2008 high school graduation cohort, is compared to logistic and linear models, which are commonly used to predict college access and success. Substantially, this work finds High School GPA to be the best predictor of postsecondary GPA, whereas commonly used ACT and AP test scores are not nearly as important. Each model identified several demographic disparities in higher education access, most significantly the effects of individual-level economic disadvantage. District- and school-level factors such as the proportion of Low Income students and the proportion of Underrepresented Racial Minority (URM) students were important and negatively associated with postsecondary success. Methodologically, the RF model was able to capture non-linearity in the predictive power of school- and district-level variables, a key finding which was undetectable using linear models. The RF algorithm outperforms logistic models in prediction of student enrollment, performs similarly to linear models in prediction of postsecondary GPA, and excels both models in its descriptions of non-linear variable relationships. RF provides novel interpretations of data, challenges conclusions from linear models, and has enormous potential to further the literature around equity in postsecondary pipelines

A Comprehensive Survey on Enterprise Financial Risk Analysis: Problems, Methods, Spotlights and Applications

Enterprise financial risk analysis aims at predicting the enterprises' future financial risk.Due to the wide application, enterprise financial risk analysis has always been a core research issue in finance. Although there are already some valuable and impressive surveys on risk management, these surveys introduce approaches in a relatively isolated way and lack the recent advances in enterprise financial risk analysis. Due to the rapid expansion of the enterprise financial risk analysis, especially from the computer science and big data perspective, it is both necessary and challenging to comprehensively review the relevant studies. This survey attempts to connect and systematize the existing enterprise financial risk researches, as well as to summarize and interpret the mechanisms and the strategies of enterprise financial risk analysis in a comprehensive way, which may help readers have a better understanding of the current research status and ideas. This paper provides a systematic literature review of over 300 articles published on enterprise risk analysis modelling over a 50-year period, 1968 to 2022. We first introduce the formal definition of enterprise risk as well as the related concepts. Then, we categorized the representative works in terms of risk type and summarized the three aspects of risk analysis. Finally, we compared the analysis methods used to model the enterprise financial risk. Our goal is to clarify current cutting-edge research and its possible future directions to model enterprise risk, aiming to fully understand the mechanisms of enterprise risk communication and influence and its application on corporate governance, financial institution and government regulation