Task 9 - Bankruptcy data

We will be working with the same dataset aas in assignment 4.

The data set contains profitability, leverage, and bankruptcy indicators for 84 US companies, 42 of which filed for Chapter 11 bankruptcy in 2001–2002 after the stock market crash in 2000. The bankrupt companies were matched with 42 surviving companies with the closest capitalisation and the same US industry classification codes.

The information for each company was collected from the annual reports for 1998–1999, i.e. 3 years prior to the defaults of the bankrupt companies. The data set contains profitability and leverage ratios calculated as the ratio of net income (NI) and total assets (TA) and the ratio of total liabilities (TL) and total assets (TA). Profitability and leverage ratios are considered as numerical variables, the bankruptcy status in 2001 is a categorical variable with levels 1 (the company filed for Chapter 11) and -1 (the company survived the market crash).

1. lda

The task is to apply the linear discriminat analysis classification.

As we can see, histograms are situated around 0. The histogram for surviving companies is more left than for those that filed for Chapter 11.

On this graphics we can see wrongly predicted values denoted in red. The proportion of wrong prediction is roughly 27%.

2. qda

Now we will use also qda and compare the results.

As we can see, qda has worsen the results as 39% of predictions are incorrect.