Evaluating company bankruptcies using causal forests
ABSTRACT This study sought to analyze the variables that can influence company bankruptcy. For several years, the main studies on bankruptcy reported on the conventional methodologies with the aim of predicting it. In their analyses, the use of accounting variables was massively predominant. However...
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| Format: | Article |
| Language: | English |
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Universidade de São Paulo
2020-07-01
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| Series: | Revista Contabilidade & Finanças |
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| Online Access: | http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772020000300542&tlng=pt |
| _version_ | 1818368086915416064 |
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| author | Wanderson Rocha Bittencourt Pedro H. M. Albuquerque |
| author_facet | Wanderson Rocha Bittencourt Pedro H. M. Albuquerque |
| author_sort | Wanderson Rocha Bittencourt |
| collection | DOAJ |
| description | ABSTRACT This study sought to analyze the variables that can influence company bankruptcy. For several years, the main studies on bankruptcy reported on the conventional methodologies with the aim of predicting it. In their analyses, the use of accounting variables was massively predominant. However, when applying them, the accounting variables were considered as homogenous; that is, for the traditional models, it was assumed that in all companies the behavior of the indicators was similar, and the heterogeneity among them was ignored. The relevance of the financial crisis that occurred at the end of 2007 is also observed; it caused a major global financial collapse, which had different effects on a wide variety of sectors and companies. Within this context, research that aims to identify problems such as the heterogeneity among companies and analyze the diversities among them are gaining relevance, given that the sector-related characteristics of capital structure and size, among others, vary depending on the company. Based on this, new approaches applied to bankruptcy prediction modeling should consider the heterogeneity among companies, aiming to improve the models used even more. A causal tree and forest were used together with quarterly accounting and sector-related data on 1,247 companies, 66 of which were bankrupt, 44 going bankrupt after 2008 and 22 before. The results showed that there is unobserved heterogeneity when the company bankruptcy processes are analyzed, raising questions about the traditional models such as discriminant analysis and logit, among others. Consequently, with the large volume in terms of dimensions, it was observed that there may be a functional form capable of explaining company bankruptcy, but this is not linear. It is also highlighted that there are sectors that are more prone to financial crises, aggravating the bankruptcy process. |
| first_indexed | 2024-12-13T23:02:22Z |
| format | Article |
| id | doaj.art-e8cdc682847b41d3a3f5bb526459dc54 |
| institution | Directory Open Access Journal |
| issn | 1808-057X |
| language | English |
| last_indexed | 2024-12-13T23:02:22Z |
| publishDate | 2020-07-01 |
| publisher | Universidade de São Paulo |
| record_format | Article |
| series | Revista Contabilidade & Finanças |
| spelling | doaj.art-e8cdc682847b41d3a3f5bb526459dc542022-12-21T23:28:22ZengUniversidade de São PauloRevista Contabilidade & Finanças1808-057X2020-07-01318454255910.1590/1808-057x202010360Evaluating company bankruptcies using causal forestsWanderson Rocha Bittencourthttps://orcid.org/0000-0003-3417-2225Pedro H. M. Albuquerquehttps://orcid.org/0000-0002-1415-716XABSTRACT This study sought to analyze the variables that can influence company bankruptcy. For several years, the main studies on bankruptcy reported on the conventional methodologies with the aim of predicting it. In their analyses, the use of accounting variables was massively predominant. However, when applying them, the accounting variables were considered as homogenous; that is, for the traditional models, it was assumed that in all companies the behavior of the indicators was similar, and the heterogeneity among them was ignored. The relevance of the financial crisis that occurred at the end of 2007 is also observed; it caused a major global financial collapse, which had different effects on a wide variety of sectors and companies. Within this context, research that aims to identify problems such as the heterogeneity among companies and analyze the diversities among them are gaining relevance, given that the sector-related characteristics of capital structure and size, among others, vary depending on the company. Based on this, new approaches applied to bankruptcy prediction modeling should consider the heterogeneity among companies, aiming to improve the models used even more. A causal tree and forest were used together with quarterly accounting and sector-related data on 1,247 companies, 66 of which were bankrupt, 44 going bankrupt after 2008 and 22 before. The results showed that there is unobserved heterogeneity when the company bankruptcy processes are analyzed, raising questions about the traditional models such as discriminant analysis and logit, among others. Consequently, with the large volume in terms of dimensions, it was observed that there may be a functional form capable of explaining company bankruptcy, but this is not linear. It is also highlighted that there are sectors that are more prone to financial crises, aggravating the bankruptcy process.http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772020000300542&tlng=ptcausal forestcausal treeheterogeneityfinancial crisisbankruptcy |
| spellingShingle | Wanderson Rocha Bittencourt Pedro H. M. Albuquerque Evaluating company bankruptcies using causal forests Revista Contabilidade & Finanças causal forest causal tree heterogeneity financial crisis bankruptcy |
| title | Evaluating company bankruptcies using causal forests |
| title_full | Evaluating company bankruptcies using causal forests |
| title_fullStr | Evaluating company bankruptcies using causal forests |
| title_full_unstemmed | Evaluating company bankruptcies using causal forests |
| title_short | Evaluating company bankruptcies using causal forests |
| title_sort | evaluating company bankruptcies using causal forests |
| topic | causal forest causal tree heterogeneity financial crisis bankruptcy |
| url | http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772020000300542&tlng=pt |
| work_keys_str_mv | AT wandersonrochabittencourt evaluatingcompanybankruptciesusingcausalforests AT pedrohmalbuquerque evaluatingcompanybankruptciesusingcausalforests |