Bankruptcy Prediction Model Using Neural Networks

Xavier Bredart

Abstract


Belgium has faced an important number of corporate bankruptcies during the last decade. The aim of this paper is to develop a model that predicts bankruptcy using three financial ratios that are simple and easily available, even for small businesses. We used a sample of 3,728 Belgian Small and Medium Enterprises (SME’s) including 1,864 businesses having been declared bankrupt between 2002 and 2012 and conducted a neural network analysis. Our results indicate that the neural network methodology based on three financial ratios that are simple and easily available as explanatory variables shows a good classification rate of more or less 80 percent. Results of this study may be of interest for financial institutions and for academics.


Full Text: PDF DOI: 10.5430/afr.v3n2p124

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Accounting and Finance Research
ISSN 1927-5986 (Print)   ISSN 1927-5994 (Online)

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