Comparison of the Predictive Accuracy of Artificial Neural Network Systems Based on Multilayer Perceptron Approach and Falmer Binary-Logistics Model in Order to Predict Bankruptcy

Subject Areas : Financial engineering

Somieh Saroei ¹ , Hamid Reza Vkili Fard, ² , Ghodratolah Taleb Nia ³

1 - Department of Accounting, Science and Research Branch, Islamic Azad University, Tehran, Iran
2 - Department of Accounting, Science and Research Branch, Islamic Azad University, Tehran, Iran
3 - Department of Accounting, Science and Research Branch, Islamic Azad University, Tehran, Iran

Received: 2021-12-12 Accepted : 2022-01-11 Published : 2022-09-23

Keywords: Artificial Neural Network, Bankruptcy Prediction, bankruptcy risk, Binary-Logistic Method,

Abstract :

Financial analysts and other users need relevant and reliable information to predict corporate bankruptcy, which should be distributed symmetrically to all users. Accordingly, the purpose of this study is to compare the prediction accuracy of Artificial Neural Network (ANN) systems based on the Multilayer Perceptron Approach and Falmer Binary-Logistics Model in order to predict bankruptcy. To test the hypotheses, the combined data of 172 companies listed on the Tehran Stock Exchange in the period 2007-2016 were used. The results of the analysis of the research data show that the ANN system can identify of the factors affecting on bankruptcy of Iranian companies in the year before bankruptcy by Precision equal 98%. Findings from the binary-logistic model showed that the forecasting model designed based on the Falmer regression method is able to predict with 82% accuracy the bankruptcy of the sample companies. Therefore, the use of artificial neural networks can more powerfully and accurately predict bankruptcy than regression models.