Physical Sciences and Mathematics Commons^™

Predicting Financial Distress: A Comparison Of Survival Analysis And Decision Tree Techniques, Adrian Gepp, Kuldeep Kumar

Adrian Gepp

Financial distress and then the consequent failure of a business is usually an extremely costly and disruptive event. Statistical financial distress prediction models attempt to predict whether a business will experience financial distress in the future. Discriminant analysis and logistic regression have been the most popular approaches, but there is also a large number of alternative cutting - edge data mining techniques that can be used. In this paper, a semi-parametric Cox survival analysis model and non-parametric CART decision trees have been applied to financial distress prediction and compared with each other as well as the most popular approaches. This …