Designing an If-Then Rules Based Ensemble of Heterogeneous Bankruptcy Classifiers: A Genetic Algorithm Approach

Intelligent Systems in Accounting, Finance and Management (2014). DOI:10.1002/isaf.1354

26 Pages Posted: 9 Aug 2014 Last revised: 20 Feb 2018

See all articles by Sergio Davalos

Sergio Davalos

University of Washington, Tacoma - Milgard School of Business

Fei Leng

University of Washington, Tacoma

Ehsan H. Feroz

University of Washington, Milgard School of Business-Accounting ; University of Illinois at Urbana-Champaign; Government of the United States of America - US GAO Advisory Council; University of Minnesota, Labovitz School of Business-Department of Accounting; University of Minnesota, Carlson School of Management-Department of Accounting; American Accounting Association

Zhiyan Cao

University of Washington Tacoma

Date Written: 2014

Abstract

We propose a framework for an ensemble bankruptcy classifier that uses if-then rules to combine the outputs from a heterogeneous set classifiers. A genetic algorithm (GA) induces the rules using an asymmetric, cost-sensitive fitness function that includes accuracy and misclassification costs. The GA-based ensemble classifier outperforms individual classifiers and ensemble classifiers generated by other methods. The results of the classifier are in the in the form of if-then rules. We apply the approach to a balanced data set and an imbalanced data set. Both are composed of firms subject to financial distress and cited in the U.S. Securities and Exchange Commission's (SEC) Accounting and Auditing Enforcement Releases (AAER).

Keywords: Ensemble, Genetic Algorithm, If then Rule Based, Bankruptcy Classifications, Asymmetric Cost Function, SEC, AAER, Accounting and Political Economy

Suggested Citation

Davalos, Sergio and Leng, Fei and Feroz, Ehsan H. and Cao, Zhiyan, Designing an If-Then Rules Based Ensemble of Heterogeneous Bankruptcy Classifiers: A Genetic Algorithm Approach (2014). Intelligent Systems in Accounting, Finance and Management (2014). DOI:10.1002/isaf.1354, Available at SSRN: https://ssrn.com/abstract=2477625

Sergio Davalos

University of Washington, Tacoma - Milgard School of Business ( email )

1900 Commerce Street
Campus Box 358420
Tacoma, WA 98402-3100
United States

Fei Leng

University of Washington, Tacoma ( email )

1900 Commerce Street
Tacoma, WA 98402-3100
United States

Ehsan H. Feroz (Contact Author)

University of Washington, Milgard School of Business-Accounting ( email )

1900 Commerce Street, Campus Box 358420
Tacoma, WA 98402-3100
United States
(253) 692 4728 (Phone)
253 692 4523 (Fax)

HOME PAGE: http://www.tacoma.washington.edu/business

University of Illinois at Urbana-Champaign ( email )

515 East Gregory Drive# 2307
Champaign, IL 61820
United States

Government of the United States of America - US GAO Advisory Council ( email )

441 G Street NW
Washington, DC 20548-0001
United States

University of Minnesota, Labovitz School of Business-Department of Accounting ( email )

10 University Drive
Labovitz School of Business
Duluth, MN 55812
United States
218-726-6988 (Phone)
218-726-8510 (Fax)

University of Minnesota, Carlson School of Management-Department of Accounting ( email )

420 Delaware St. SE
Minneapolis, MN 55455
United States

American Accounting Association ( email )

5717 Bessie Drive
Sarasota, FL 34233-2399
United States

Zhiyan Cao

University of Washington Tacoma ( email )

1900 Commerce St, Campus Box 358420
Tacoma, WA 98402-3100
United States
(253) 692-4821 (Phone)
(253) 692-4523 (Fax)

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