Comparative analysis of data mining methods for bankruptcy prediction

Authors:
David L. Olson;Dursun Delen;Yanyan Meng
Affiliations:
University of Nebraska, Management, 3300 Sheridan Court, Lincoln, NE 68506, United States;State University, Management Science and Information Systems, United States;University of Nebraska, Management, 3300 Sheridan Court, Lincoln, NE 68506, United States
Venue:
Decision Support Systems
Year:
2012

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Abstract

A great deal of research has been devoted to prediction of bankruptcy, to include application of data mining. Neural networks, support vector machines, and other algorithms often fit data well, but because of lack of comprehensibility, they are considered black box technologies. Conversely, decision trees are more comprehensible by human users. However, sometimes far too many rules result in another form of incomprehensibility. The number of rules obtained from decision tree algorithms can be controlled to some degree through setting different minimum support levels. This study applies a variety of data mining tools to bankruptcy data, with the purpose of comparing accuracy and number of rules. For this data, decision trees were found to be relatively more accurate compared to neural networks and support vector machines, but there were more rule nodes than desired. Adjustment of minimum support yielded more tractable rule sets.