Financial Distress Prediction Based on Similarity Weighted Voting CBR

Financial distress prediction is an important research topic in both academic and practical world. This paper proposed a financial distress prediction model based on similarity weighted voting case-based reasoning (CBR), which consists of case representation, similar case retrieval and combination of target class. An empirical study was designed and carried out by using Chinese listed companies’ three-year data before special treatment (ST) and adopting leave-one-out and grid-search technique to find the model’s good parameters. The experiment result of this model was compared with multi discriminant analysis (MDA), Logit, neural networks (NNs) and support vector machine (SVM), and it was concluded that similarity weighted voting CBR model has very good predictive ability for enterprises which will probably run into financial distress in less than two years, and it is more suitable for short-term financial distress prediction.