Neural Network Simulation and the Prediction of Corporate Outcomes: Some Empirical Findings

Neural Networks (NN's) involve an innovative method of simulating and analysing complex and constantly changing systems of relationships. Originally developed to mimic the neural architecture and functioning of the human brain, NN techniques have recently been applied to many different business fields and have demonstrated a capability to solve complex problems. This paper investigates the use of NN techniques as a tool for the modelling and prediction of corporate bankruptcy and other corporate outcomes. The within and out-of-sample accuracy of trained NNs are compared with those of standard logit and multilogit techniques. The results of the study suggest that, from a pure predictive point of view, NN simulation produces a higher predictive accuracy and is more robust than conventional logit and multilogit models.