AdaBoost ensemble for financial distress prediction: An empirical comparison with data from Chinese listed companies

Authors:
Jie Sun;Ming-Yue Jia;Hui Li
Affiliations:
School of Economics and Management, Zhejiang Normal University, P.O. Box 62, YingBinDaDao 688, Jinhua 321004, Zhejiang Province, PR China;School of Economics and Management, Zhejiang Normal University, P.O. Box 62, YingBinDaDao 688, Jinhua 321004, Zhejiang Province, PR China;School of Economics and Management, Zhejiang Normal University, P.O. Box 62, YingBinDaDao 688, Jinhua 321004, Zhejiang Province, PR China
Venue:
Expert Systems with Applications: An International Journal
Year:
2011

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Abstract

Due to the important role of financial distress prediction (FDP) for enterprises, it is crucial to improve the accuracy of FDP model. In recent years, classifier ensemble has shown promising advantage over single classifier, but the study on classifier ensemble methods for FDP is still not comprehensive enough and leaves to be further explored. This paper constructs AdaBoost ensemble respectively with single attribute test (SAT) and decision tree (DT) for FDP, and empirically compares them with single DT and support vector machine (SVM). After designing the framework of AdaBoost ensemble method for FDP, the article describes AdaBoost algorithm as well as SAT and DT algorithm in detail, which is followed by the combination mechanism of multiple classifiers. On the initial sample of 692 Chinese listed companies and 41 financial ratios, 30 times of holdout experiments are carried out for FDP respectively one year, two years, and three years in advance. In terms of experimental results, AdaBoost ensemble with SAT outperforms AdaBoost ensemble with DT, single DT classifier and single SVM classifier. As a conclusion, the choice of weak learner is crucial to the performance of AdaBoost ensemble, and AdaBoost ensemble with SAT is more suitable for FDP of Chinese listed companies.