A multi-industry bankruptcy prediction model using back-propagation neural network and multivariate discriminant analysis

摘要

The accurate prediction of corporate bankruptcy for the firms in different industries is of a great concern to investors and creditors, as the reduction of creditors’ risk and a considerable amount of saving for an industry economy can be possible. This paper presents a multi-industry investigation of the bankruptcy of Korean companies using back-propagation neural network (BNN). The industries include construction, retail, and manufacturing. The study intends to suggest the industry specific model to predict bankruptcy by selecting appropriate independent variables. The prediction accuracy of BNN is compared to that of multivariate discriminant analysis.The results indicate that prediction using industry sample outperforms the prediction using the entire sample which is not classified according to industry by 6–12%. The prediction accuracy of bankruptcy using BNN is greater than that of MDA. The study suggests insights for the practical industry model for bankruptcy prediction.