A two-stage classification technique for bankruptcy prediction

Ensemble techniques such as bagging or boosting, which are based on combinations of classifiers, make it possible to design models that are often more accurate than those that are made up of a unique prediction rule. However, the performance of an ensemble solely relies on the diversity of its different components and, ultimately, on the algorithm that is used to create this diversity. It means that such models, when they are designed to forecast corporate bankruptcy, do not incorporate or use any explicit knowledge about this phenomenon that might supplement or enrich the information they are likely to capture. This is the reason why we propose a method that is precisely based on some knowledge that governs bankruptcy, using the concept of “financial profiles”, and we show how the complementarity between this technique and ensemble techniques can improve forecasts.