Artificial neural network model for business failure prediction of distressed firms in Colombo Stock Exchange

The prediction of business failures is one of the important analyses in corporate world. The research study constructs business failure prediction model for companies listed in Colombo Stock Exchange (CSE). Data were gathered from eighty two companies listed in CSE for the sample period of 2011 to 2013. To achieve the research objectives, Artificial Neural Network (ANN) analysis was employed as measure of analysis. The results of ANN model for holdout sample, the model correctly predicted 80% while Type I Error and Type II Error were 40% and 0% respectively for the year 2011. Thus, the model correctly predicted 90% while Type I Error and Type II Error were 20% and 0% respectively for the year 2012. Furthermore, the model correctly predicted 90% while Type I Error and Type II Error were 20% and 0% respectively for the year 2013. It was found that artificial neural network analysis predict business failures of firms listed in CSE with high level of accuracy by identifying non liner relationships of variables of business failure prediction.