Predicting Company Default Risks: A Machine Learning Perspective on Importance Features

The 2008 Global Financial Crisis was a devastating event for financial market investors worldwide, as it came unexpectedly and affected every financial market in the world, causing millions of people to suffer massive loss of value of their pension funds and assets. The trigger cause of this Global Financial Crisis was the default of Lehman Brothers, one of the biggest companies in the United States. This paper is intended to prevent this event from happening again by predicting the most important variables causing company default. Company management and investors could take preventive measures when they see signs of these variables in their company. This experiment uses XGBoost, Support Vector Machine, and Random Forest machine learning model, with data retrieved from the Taiwan Economic Journal from 1999 to 2009. The experiment suggests the top 5 most important variables regarding company default are Continuous interest rate (after tax), Persistent EPS in the Last Four Seasons, Total debt/Total net worth, Interest Expense Ratio, and Net Value per Share, with an importance score of 0.447, 0.104, 0.038, 0.033, and 0.032, respectively. These findings show that features related to a company's profitability and liabilities have a strong impact on a company's risk of defaulting.