Enhancing corporate bankruptcy prediction via a hybrid genetic algorithm and domain adaptation learning architecture.

Abstract

In the contemporary business landscape, accurately evaluating a company’s financial health is essential for stakeholders to mitigate risks and avert bankruptcy. This study presents an innovative approach to improving business bankruptcy prediction through the hybrid integration of Domain Adaptation Learning (DAL) and Genetic Algorithm (GA) techniques. The hybrid model harnesses DAL to address distributional changes in the real world scenarios and utilize GA’s proficiency in feature selection. Six machine learning models are rigorously evaluated against the proposed hybrid model: Random Forest (RF), Support Vector Machine (SVM), Logistic Regression (LR), Gradient Boosting (GB), k-Nearest Neighbours (k-NN), and Stacking Ensemble (SE). Our hybrid model performs well on imbalanced target datasets using the Area Under the Precision–Recall Curve metric: 0.93 (RF), 0.93 (SVM), 0.89 (LR), 0.91 (GB), 0.88 (k-NN), and 0.92 (SE). These findings highlight the model’s ability to overcome the limitations of traditional approaches, offering a more reliable predictive framework for stakeholders to make informed decisions and proactively manage financial stability. Future research directions may explore the applicability of this hybrid model across different industries and the integration of additional techniques to further enhance its performance.