A Data-driven Case-based Reasoning in Bankruptcy Prediction

34 Pages Posted: 17 Sep 2022 Last revised: 2 Nov 2022

See all articles by Wei Li

Wei Li

National University of Singapore (NUS) - Institute of Operations Research and Analytics

Wolfgang Karl Härdle

Blockchain Research Center Humboldt-Universität zu Berlin; Charles University; National Yang Ming Chiao Tung University; Asian Competitiveness Institute; Academy of Economic Studies, Bucharest

Stefan Lessmann

School of Business and Economics, Humboldt-University of Berlin

Date Written: September 4, 2022

Abstract

There has been intensive research regarding artificial intelligence (AI) models for predicting bankruptcy in recent years. In this study, a data-driven case-based reasoning (CBR) method is proposed for bankruptcy prediction, testing its performance with financial data from German companies. A comparison of the predictive abilities of both the proposed method and other modern data-driven methods is presented. The results show that the proposed automatic design CBR technology has a good predictive performance, overcoming the design drawback of the CBR approach, which highly depends on prior expert knowledge about the corresponding field. In addition, the empirical studies show the explainability of CBR in the decision-making process of bankruptcy prediction.

Keywords: Decision support system, Bankruptcy prediction, Case-based reasoning, Particle swarm optimization

JEL Classification: M1, G33, G24

Suggested Citation

Li, Wei and Härdle, Wolfgang Karl and Lessmann, Stefan, A Data-driven Case-based Reasoning in Bankruptcy Prediction (September 4, 2022). Available at SSRN: https://ssrn.com/abstract=4209433 or http://dx.doi.org/10.2139/ssrn.4209433

Wei Li (Contact Author)

National University of Singapore (NUS) - Institute of Operations Research and Analytics ( email )

Singapore

Wolfgang Karl Härdle

Blockchain Research Center Humboldt-Universität zu Berlin ( email )

Unter den Linden 6
Berlin, D-10099
Germany

Charles University ( email )

Celetná 13
Dept Math Physics
Praha 1, 116 36
Czech Republic

National Yang Ming Chiao Tung University ( email )

No. 1001, Daxue Rd. East Dist.
Hsinchu City 300093
Taiwan

Asian Competitiveness Institute ( email )

Singapore

Academy of Economic Studies, Bucharest ( email )

Bucharest
Romania

Stefan Lessmann

School of Business and Economics, Humboldt-University of Berlin ( email )

Unter den Linden 6
Berlin, Berlin 10099
Germany

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