Financial ratios as a powerful instrument to predict insolvency; a study using boosting algorithms in Colombian firms

Diego Andrés Correa-Mejía () and Mauricio Lopera-Castaño ()

Estudios Gerenciales, 2020, vol. 36, issue 155, 229-238

Abstract: This study is motivated by the importance of accurately predicting insolvency before it happens. The paper aims to develop an insolvency prediction model for Colombian firms with one, two and three years of anticipation through financial ratios, keeping sample structures and taking into account insolvency-related regulation. This research contributes to the literature because unlike many studies, it takes legislation into account, explains the different types of financial ratios, and uses boosting algorithms without biasing the sample. Data from 11,812 Colombian companies covering the period 2012-2016 was used. The results show accuracy above 70% for insolvency predic-tion with one, two and three years of anticipation.

Keywords: insolvency prediction; bankruptcy; financial analysis; financial ratios; boosting algorithm (search for similar items in EconPapers)
JEL-codes: C58 G17 G38 (search for similar items in EconPapers)
Date: 2020
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https://doi.org/10.18046/j.estger.2020.155.3588

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Persistent link: https://EconPapers.repec.org/RePEc:col:000129:018340

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