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Personal Bankruptcy Prediction Using Logistic Regression Model

Author

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  • Sharifah Heryati Syed Nor
  • Shafinar Ismail
  • Yap Bee Wah

Abstract

According to the Insolvency Department of Malaysia, as of December 2023, 233,483 Malaysians are currently involved in bankruptcy cases due to their defaults on hire purchase loans, credit card loans, personal loans, housing loans, and business loans. This is indeed a critical issue because the growing number of personal bankruptcy cases will hurt the Malaysian economy as well as society. From an individual's economic perspective, bankruptcy minimizes their chances of getting a job. Apart from that, their accounts will be frozen, they will lose control of their properties and assets, and they will not be allowed to start any business or be a part of any company's Board of Directors. Bankrupts also will be rejected from any loan application. This paper examines this problem by developing a personal bankruptcy prediction model using the logistic regression technique. This paper defines "bankrupt" as terminated members who failed to settle their loans. The sample comprised 24,546 cases with 17% settled cases and 83% terminated cases. The data included a dependent variable, i.e., bankruptcy status (Y=1(bankrupt), Y=0(non-bankrupt)), and 12 predictors. Upon completion, this paper succeeds in coming out with a reliable personal bankruptcy prediction model and significant variables of personal bankruptcy. The findings of this paper are very beneficial and significant to creditors, banks, the Malaysia Department of Insolvency, potential borrowers, members of AKPK, and society in general in raising awareness of personal bankruptcy risks and such information may help them to take preventive measures in minimizing the number of personal bankruptcy cases.

Suggested Citation

  • Sharifah Heryati Syed Nor & Shafinar Ismail & Yap Bee Wah, 2024. "Personal Bankruptcy Prediction Using Logistic Regression Model," Information Management and Business Review, AMH International, vol. 16(3), pages 366-378.
    • Handle: RePEc:rnd:arimbr:v:16:y:2024:i:3:p:366-378
    DOI: 10.22610/imbr.v16i3S(I)a.4139
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    References listed on IDEAS

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    1. Joanna Stavins, 2000. "Credit card borrowing, delinquency, and personal bankruptcy," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 15-30.
    2. Susan M. Hailpern & Paul F. Visintainer, 2003. "Odds ratios and logistic regression: further examples of their use and interpretation," Stata Journal, StataCorp LLC, vol. 3(3), pages 213-225, September.
    3. David B. Gross, 2002. "An Empirical Analysis of Personal Bankruptcy and Delinquency," The Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 319-347, March.
    4. Agarwal, Sumit & Chomsisengphet, Souphala & Liu, Chunlin, 2011. "Consumer bankruptcy and default: The role of individual social capital," Journal of Economic Psychology, Elsevier, vol. 32(4), pages 632-650, August.
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