Support Vector Machines for Credit Scoring and discovery of significant features

The assessment of risk of default on credit is important for financial institutions. Logistic regression and discriminant analysis are techniques traditionally used in credit scoring for determining likelihood to default based on consumer application and credit reference agency data. We test support vector machines against these traditional methods on a large credit card database. We find that they are competitive and can be used as the basis of a feature selection method to discover those features that are most significant in determining risk of default. 1

Bayesian network application possibilities for corporate state modelling

The study is dedicated to analyzing the possibilities of applying probabilistic models in Bayesian network (BN) form to modelling and estimating the current corporate state. A literature review is implemented, that proves correctness of the chosen modelling method. The study depicts the peculiarities of BN development, based on statistic data and expert opinions. Successful use of such an approach to the real data proves its real opportunities for classifying firms on actual data basis

Analisis Rasio Likuiditas, Rasio Profitabilitas, Rasio Laverage, Dan Arus Kas Dalam Memprediksi Financial Distres Pada Perusahaan Manufaktur Yang Terdapat Di BEI Periode 2011-2015

This study aims to determine the analysis of Liquidity Ratios, Profitability Ratios, Laverage Ratios and Operating Cash Flow In Predicting Financial Distress At Manufacturing Companies Listed In IDX Period 2011-2015. The data used in this research is 254 data. The sampling technique used in this research is purposive sampling. Data analysis method used is classical assumption test and multiple linear regression analysis test with t test, F test, and coefficient of determination (R2). The findings show that both partially and return on assets (ROA), Debt Equity Ratio (DER) have a significant effect on Financial Distress while Current Ratio and Operating Cash Flow (AKP) have no significant effect on Financial Distress. Simultaneously Return On Assets (ROA), Debt Equity Ratio (DER), Current Ratio, and Operating Cash Flow (AKP) have a significant effect on stock return. All independent variables in this study were able to explain the variable stock return of 34.9% and the remaining 65.1% explained by other variables outside the test model of this study. Keywords: liquidity ratio, profitability ratio, leverage ratio, operating cash flow, and financial distres

Determinants of Financial Distress in Case of Insurance Companies in Ethiopia

The financial health status of business firms and the effect of firm characteristics on it are taught to be one of the very important issues in the current business environment. This study empirically examines the effect of internal factors (i.e., Profitability, Liquidity, Efficiency, Leverage and firm size) on the financial distress condition of insurance companies in Ethiopia. The study is based on a ten year panel data ranging from 2009 to 2018 GC, obtained from a sample of nine insurance companies. The study employed the Altman’s Z”-score model to measure the financial health condition of insurance companies under study, and the pooled OLS regression analysis to estimate the effect of determinant variables on financial distress. The study concluded that the profitability and liquidity levels of insurance companies have a statistically significant positive effect on their financial distress condition. Whereas, leverage has a statistically significant negative effect on the financial distress condition of insurance companies. Efficiency and firm size have no statistically significant effect on the financial health condition of insurance companies. Keywords: Altman’s Z”-Score, Financial distress, Pooled OLS. DOI: 10.7176/RJFA/10-15-05 Publication date: August 31st 2019

Operations research in consumer finance: challenges for operational research

Consumer finance has become one of the most important areas of banking both because of the amount of money being lent and the impact of such credit on the global economy and the realisation that the credit crunch of 2008 was partly due to incorrect modelling of the risks in such lending. This paper reviews the development of credit scoring,-the way of assessing risk in consumer finance- and what is meant by a credit score. It then outlines ten challenges for Operational Research to support modelling in consumer finance. Some of these are to developing more robust risk assessment systems while others are to expand the use of such modelling to deal with the current objectives of lenders and the new decisions they have to make in consumer financ

Consumer finance: challenges for operational research

Consumer finance has become one of the most important areas of banking, both because of the amount of money being lent and the impact of such credit on global economy and the realisation that the credit crunch of 2008 was partly due to incorrect modelling of the risks in such lending. This paper reviews the development of credit scoring—the way of assessing risk in consumer finance—and what is meant by a credit score. It then outlines 10 challenges for Operational Research to support modelling in consumer finance. Some of these involve developing more robust risk assessment systems, whereas others are to expand the use of such modelling to deal with the current objectives of lenders and the new decisions they have to make in consumer finance. <br/

SMEs Failure Prediction: Literature Review

The main purpose of this paper is to review the literature on the empirical methodologies utilized in bankruptcy prediction and the potential predictors of organization failure by emphasis in Small and medium enterprises (SMEs). In developing countries, small-scale businesses are the most important source of new employment opportunities. Governments throughout the world attempt to promote economic progress by focusing on small-scale enterprises. Despite the fact that SMEs play an increasingly important role in providing new products and employment opportunities, SMEs in Thailand have encountered many difficulties, especially financing. SMEs frequently lack access to institutional credit, causing them to encounter high financing costs and facing failure. The economic, financial, and social losses resulting from these failures are significant. Thus, it is valuable to try to develop methods to predict such failures. However, there are only very few studies dealing with failure prediction methods for SMEs compared to those that focus on listed companies context. The studies examined SMEs failure or survival such as Keasey and Watson (1987), Laitinen (1992), Wagner (1994), Huyghebaert and Gaeremynck (2000), Watson (2003), Bilderbeek and Pompe (2005), April (2005), Altman and Sabato (2007) and Fantazzini and Figini (2009b). It is important to note that the studies mentioned earlier were not conducted for the case of Thailand

Impact of Financial Distress on the Liquidity of Selected Manufacturing Firms of Ethiopia

It is not uncommon to see manufacturing firms struggling to turnaround from their financial distress.  Liquidity ratio has important implication on the firm’s solvency. With this in mind, the main objective of the study is to examine the relationship between liquidity and financial distress of manufacturing firms in Ethiopia for the period from 1999 to 2005. Besides this the research examines various other factors affecting financial distress. Due to data heterogeneity, non-continuity and because the Hausman test favors it over the Random Effect technique, the panel data General Least Square  (GLS) regression method is used. The result proves that liquidity, profitability, and efficiency have positive and significant influence on debt service coverage.  On contrary, leverage has negative and significant influence on Debt Service coverageTo save infant manufacturing firms, policy makers have the opportunity to influence the financing policy of the firms in the promotion of equity financing by controlling leverage. Banks should supervise the liquidity, solvency, profitability and efficiency of firms in mitigating the debt burden through application of various techniques during loan evaluation process. The appropriate firm executives should consider improving efficiency of firm’s performance through retrenchment of assets and replacing, liquidity through improving cash collection, profitability through replacement of departments, products or lines of the business. FD have a negative impact on DSC and leading firms to bankruptcy and liquidation and can cause economic, social and political impact on manufacturing firms and contribute to the CEO resignation, employee’s layoff or loss of jobs, dividend reduction, plant closing and related consequential health and moral distress. Keywords: Financial Distress, liqudity, Ethiopi

Determinants of Financial Distress in Manufacturing Firms of Ethiopia

It is not uncommon to see manufacturing firms struggling to turnaround from their financial distress.  Debt Service Coverage ratio is presumed to play a role in addressing this problem. With this in mind, the main objective of the study is to investigate the determinants of financial distress of manufacturing firms in Ethiopia for the period from 1999 to 2005. Due to data heterogeneity, non-continuity and because the Hausman test favors it over the Random Effect technique, the panel data General Least Square  (GLS) regression method is used. The result proves that liquidity, profitability, and efficiency have positive and significant influence on debt service coverage.  On contrary, leverage has negative and significant influence on Debt Service coverage.To save infant manufacturing firms, policy makers have the opportunity to influence the financing policy of the firms in the promotion of equity financing by controlling leverage. Banks should supervise the liquidity, solvency, profitability and efficiency of firms in mitigating the debt burden through application of various techniques during loan evaluation process. The appropriate firm executives should consider improving efficiency of firm’s performance through retrenchment of assets and replacing, liquidity through improving cash collection, profitability through replacement of departments, products or lines of the business. FD have a negative impact on DSC and leading firms to bankruptcy and liquidation and can cause economic, social and political impact on manufacturing firms and contribute to the CEO resignation, employee’s layoff or loss of jobs, dividend reduction, plant closing and related consequential health and moral distress. Keywords: Financial Distress, Debt Service Coverage, Ethiopi