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Mining semantic features in current reports for financial distress prediction: Empirical evidence from unlisted public firms in China

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  • Jiang, Cuiqing
  • Lyu, Ximei
  • Yuan, Yufei
  • Wang, Zhao
  • Ding, Yong

Abstract

It is difficult to predict the financial distress of unlisted public firms due to their longer disclosure cycle of accounting information and more inadequate continuity of market trading information compared to listed firms. In this paper, we propose a framework to predict the financial distress of unlisted public firms using current reports. Specifically, to better represent the meaning of current report texts, we propose a semantic feature extraction method based on a word embedding technology. Empirical results show that current reports contain more effective information for predicting the financial distress of unlisted public firms compared with periodic reports. In addition, semantic features extracted using our proposed method significantly improve the predictive performance, and their enhancing effect is superior to that of topic features and sentiment features. Our study also provides implications for stakeholders such as investors and creditors.

Suggested Citation

  • Jiang, Cuiqing & Lyu, Ximei & Yuan, Yufei & Wang, Zhao & Ding, Yong, 2022. "Mining semantic features in current reports for financial distress prediction: Empirical evidence from unlisted public firms in China," International Journal of Forecasting, Elsevier, vol. 38(3), pages 1086-1099.
    • Handle: RePEc:eee:intfor:v:38:y:2022:i:3:p:1086-1099
    DOI: 10.1016/j.ijforecast.2021.06.011
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