Hybrid bankruptcy forecasting for Indian firms: Integrating financial ratios, macroeconomic indicators, and random forest
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Author(s)Marco BonelliLink to ORCID Index: https://orcid.org/0000-0003-3463-6421
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DOIhttp://dx.doi.org/10.21511/imfi.23(2).2026.02
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Article InfoVolume 23 2026, Issue #2, pp. 13-23
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Type of the article: Research Article
Abstract
Bankruptcy forecasting in emerging markets is complicated by macroeconomic and regulatory volatility. This study evaluates whether a hybrid model that integrates firm financial ratios, macro indicators, and a Random Forest classifier outperforms traditional ratio-only approaches for Indian firms. Each bankrupt company is analyzed over a five-year window preceding its actual failure date, resulting in ten bankrupt firms paired with ten matched healthy peers. Using these firm-specific five-year pre-bankruptcy panels, we estimate logistic regression and Random Forest models with stratified 5-fold cross-validation and derive a parsimonious four-factor risk score.
Relative to ratio-only baselines, the hybrid design improves accuracy from 0.76→0.80 (logit) and 0.82→0.86 (Random Forest), and lifts the Area Under the ROC Curve (AUC) from 0.70→0.78, indicating that the model correctly ranks a bankrupt firm as riskier than a healthy firm 78% of the time. Debt-to-Equity, Current Ratio, Net Profit Margin, and GDP Growth dominate feature importance, and rising risk scores typically cross ~0.40 two to three years before failure.
Robustness checks, including alternative class-balance weights, sector dummies, and rolling-window estimation, yield comparable gains and stable feature rankings. The resulting bankruptcy Early-Warning System (EWS) is transparent, portfolio-scalable, and easily embedded into bank risk dashboards. The evidence shows that multidimensional hybrid models provide earlier and more reliable warnings than ratio-based formulas, offering practical value to lenders, investors, and regulators in volatile settings.
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JEL Classification (Paper profile tab)G33, C53
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References27
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Tables4
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Figures1
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- Figure 1. Bankruptcy risk scores: Initial vs. signaling score jump across analyzed companies
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- Table 1. Group means and t-tests (five-year pre-bankruptcy window)
- Table 2. DHFL bankruptcy probability (2015–2019)
- Table 3. RCom bankruptcy probability (2015–2019)
- Table 4. Baseline vs. hybrid model performance (validation set)
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Ruslana Pikus ,
Nataliia Prykaziuk ,
Mariia Balytska 
doi: http://dx.doi.org/10.21511/imfi.15(4).2018.18
Investment Management and Financial Innovations Volume 15, 2018 Issue #4 pp. 219-228 Views: 5022 Downloads: 761 TO CITE АНОТАЦІЯIn the current conditions of the Ukrainian economy, which is characterized by crisis phenomena and frequent changes in legislation, the insurance organizations are facing a number of difficulties in maintaining their financial sustainability. Moreover, these processes take place under the increased requirements for solvency of insurers. However, a significant part of domestic insurance companies is financially unstable, which is conditioned not only by the lack of funds, but also by the low level of management. This situation hinders the further development of the insurance market in Ukraine and has a negative impact on all areas of the domestic financial system and prevents it from successful integration into the European financial field. In order to address this problem, it is necessary to distinguish the key groups of risks that affect the financial sustainability of insurance organizations, among which there are the following: insurance, strategic, market risk, risk of inefficient capital structure, risk of limiting the insurance company’s liquidity, tax risk, investment risk, operational risk, the risk of ineffective organizational structure of the enterprise, and information risk. It should be noted that under conditions of changing environment, the impact of these risks only increases, and therefore the task of minimizing the impact of these risks on the activities of insurance companies is highly important. Accordingly, the authors of the article proposed a four-stage strategy to manage the financial sustainability of the insurance company, the purpose of which is to identify the risks of limiting the insurer’s financial sustainability, their qualitative and quantitative assessment, as well as the development and implementation of appropriate measures to minimize and eliminate unacceptable consequences.
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Selection of the right proxy market portfolio for CAPM
Rashmi Chaudhary ,
Priti Bakhshi
doi: http://dx.doi.org/10.21511/imfi.18(3).2021.02
Investment Management and Financial Innovations Volume 18, 2021 Issue #3 pp. 16-26 Views: 4965 Downloads: 1918 TO CITE АНОТАЦІЯThe purpose of the paper is to select the right market proxy for calculating the expected return, since critically evaluating proxies or selecting the correct proxy market portfolio is essential for portfolio management because the change in the market portfolio proxy affects returns. In this study, monthly data of equity indices are evaluated to find out the better market proxy. The indices taken are BSE 30 (Sensex), Nifty 50, BSE 100, BSE 200, and BSE 500. The macroeconomic variables used in the study are industrial production index (IIP), consumer price index (CPI), money supply (M1), and exchange rate in India. To avoid the influence of COVID-19, the research period was from January 2013 to December 2019 to critically evaluate these proxies in order to find the most appropriate market proxy. This paper reveals a noteworthy relationship between stock market returns and macroeconomic factors, while suggesting that the BSE 500 is a better choice for all equity indices, as the index also shows a significant relationship with all macroeconomic variables. BSE500 is a composite index comprising all sectors with low, mid and large cap securities, therefore it reflects the impact of macroeconomic factors most efficiently, taking it as a market proxy. This study was carried out in the context of India and can be replicated for other countries.
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The risk management practices in the manufacturing SMEs in Cape Town
Problems and Perspectives in Management Volume 15, 2017 Issue #2 (cont. 2) pp. 386-403 Views: 4806 Downloads: 934 TO CITE АНОТАЦІЯRisk management is one of the prominent issues which are pivotal to the success of a business and may adversely affect profitability if not properly practised. Therefore, the main objective of this paper was to determine risk management practices in manufacturing SMEs in Cape Town. The research conducted was quantitative in nature and constituted the collection of data from 74 SME leaders, all of whom had to adhere to a list of strict delineation criteria. All data collected were thoroughly analyzed through means of descriptive statistics. From the findings made, it is clear that SMEs in the manufacturing sector do in fact understand risk management initiatives applicable to ‘manage’ their respective businesses towards sustainability, but not to a large extent. It was found that respondents are unaware of the elements which make risk management effective, which ultimately aids to the development of problems for SMEs. All employees, managers and owners must coordinate their efforts together to identify and manage organizational risks within their ambit to obtain total risk coverage, as well as provide assurance that these risks are effectively managed from a coordinated approach. Further studies may be carried out to identify measures that can be taken to improve the effectiveness of risk management practices in SMEs.
