Bankruptcy prediction models based on multinorm analysis: An alternative to accounting ratios

0950-7051/$ see front matter 2011 Elsevier B.V. A doi:10.1016/j.knosys.2011.11.005 ⇑ Corresponding author. Address: Faculty of Econom Oviedo, Avda. Del Cristo s/n, 33006 Oviedo, Spain. Te E-mail address: [email protected] (J. de Andrés). In this paper we address the bankruptcy prediction problem and outline a procedure to improve the performance of standard classifiers. Our proposal replaces traditional indicators (accounting ratios) with the output of a so-called multinorm analysis. The deviations of each firm from a battery of industry norms (computed by nonparametric quantile regression) are used as input variables for the classifiers. The approach is applied to predict bankruptcy of firms, and tested on a representative data set of Spanish firms. Results indicate that the approach may provide significant improvements in predictive accuracy, both in linear and nonlinear classifiers. 2011 Elsevier B.V. All rights reserved.