Classifying Bankruptcy of Small and Medium Sized Enterprises with Partial Least Square Discriminant Analysis

Abstract

The impact of firms' insolvency is enormous to all stakeholders involved, especially to the creditors. It increases unemployment rate and harms investors' confidence in the financial market. This paper compares the ability of Partial Least Square Discriminant Analysis (PLS-DA) in classifying bankrupt firms with the benchmark logit model. Dataset are Malaysian Small and Medium Enterprise (SMEs) categorized under the transportation and storage sector. The analysis shows that PLS-DA outperformed the logit model.