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The role of feature importance in predicting corporate financial distress in pre and post COVID periods: Evidence from China

Shusheng Ding Orcid Logo, Tianxiang Cui Orcid Logo, Anthony Graham Bellotti, Mohammad Abedin Orcid Logo, Brian Lucey

International Review of Financial Analysis, Volume: 90, Start page: 102851

Swansea University Author: Mohammad Abedin Orcid Logo

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DOI (Published version): 10.1016/j.irfa.2023.102851

Abstract

The prediction of firm financial distress during the COVID-19 crisis episode attracted massive academic attention since economic uncertainty was exacerbated. In this paper, we propose a firm financial distress prediction model based on the Extreme Gradient Boosting-Genetic Programming (XGB-GP) frame...

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Published in: International Review of Financial Analysis
ISSN: 1057-5219 1873-8079
Published: Elsevier BV 2023
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URI: https://cronfa.swan.ac.uk/Record/cronfa64218
Abstract: The prediction of firm financial distress during the COVID-19 crisis episode attracted massive academic attention since economic uncertainty was exacerbated. In this paper, we propose a firm financial distress prediction model based on the Extreme Gradient Boosting-Genetic Programming (XGB-GP) framework by investigating subsamples of pre-COVID and post-COVID periods. The key contribution of our paper is that we explore time-varying prediction features for pre-COVID and post-COVID periods. We illuminate that the earning financial indicator is the dominant feature for financial distress prediction during the pre-COVID period, whereas total financial leverage is the most important factor during the post-COVID period. On this basis, our XGB-GP financial distress prediction model exhibits higher prediction accuracy than the traditional models. As a result, managers can modify the financial leverage level to improve the financial situation of the firm by reducing the debt burden and increasing profitability during the post-COVID period.
Keywords: Financial distress prediction, Time-varying feature selection, Extreme gradient boosting, Genetic programming, COVID-19 crisis
College: Faculty of Humanities and Social Sciences
Start Page: 102851

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