GRAPH THEORETICAL APPROACH TO BANKRUPTCY PREDICTION OF RETAILERS

Kwangseek Choe, State University of New York College at Plattsburgh, Plattsburgh, New York, U.S.A.
Brian Neureuther, State University of New York College at Plattsburgh, Plattsburgh, New York, U.S.A.

Published in

JOURNAL OF INTERNATIONAL FINANCE STUDIES
Volume 20, Issue 1, p5-16, March 2020

ABSTRACT

This paper examines the applicability of a graph theoretical approach to bankruptcy prediction and assessment of financial health of retailers. A sample of 49 retailers are selected for study. Six financial ratios that are considered to be key performance measures of retailers are identified from a literature review. The interactions of these financial ratios are converted into an adjacency matrix and the matrix permanent is calculated as an index of a retailer’s financial health. The comparison of financial health indices derived from the graph theoretical approach with Altman Z-scores demonstrates a high level of the applicability of the graph theoretical approach to bankruptcy prediction of retailers.

Keywords

Graph theory, matrix permanent, bankruptcy prediction, financial health, retailers


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