Bankruptcy prediction for SMEs using transactional data and two-stage multiobjective feature selection

Many bankruptcy prediction models for small and medium-sized enterprises (SMEs) are built using accounting-based financial ratios. This study proposes a bankruptcy prediction model for SMEs that uses transactional data and payment network-based variables under a scenario where no financial (accounting) data are required. Offline and online test results both confirmed the predictive capability and economic benefit of transactional data-based variables. However, incorporating those features in predictive models produces high dimensional problems, which deteriorates model interpretability and increases feature acquisition costs. Thus, we propose a two-stage multiobjective feature-selection method that optimizes the number of features as well as model classification performance. The results showed that the proposed model achieved similar classification performance while greatly reducing the cardinality of the feature subset. Finally, the feature importance evaluation for features in the optimal subset confirmed the importance of transactional data and payment network-based variables for bankruptcy prediction.

Automated summary

A bankruptcy prediction model for SMEs using transactional data and payment network-based variables is proposed in this study. A two-stage multiobjective feature-selection method is used to optimize the model classification performance and reduce the number of features. The importance of transactional data and payment network-based variables for bankruptcy prediction is confirmed through feature importance evaluation.