Evaluation metrics and dimensional reduction for binary classification algorithms: a case study on bankruptcy prediction

This paper presents a methodology that permits to automate binary classification using the minimum possible number of attributes. In this methodology, the success of the binary prediction does not lie in the accuracy of an algorithm but in the evaluation metrics, which give information about the goodness of fit; which is an important factor when the data batch is unbalanced. The proposed methodology assesses the possible biases in identifying one algorithm as the best performer when considering the goodness of fit of an algorithm through evaluation metrics. The dimension of data has been reduced through the cumulative explained variance. Then, the performance of six machine learning classification models has been compared through Matthew correlation coefficient (MCC), area under curve - receiver operating characteristic (ROC-AUC), and area under curve - precision-recall (AUC-PR). The results show graphically and numerically how the evaluation metrics interfere with the most optimal outcome of an algorithm. The algorithms with the best performance in terms of evaluation metrics have been random forest and gradient boosting. In the imbalanced datasets, MCC has provided better prediction results than ROC-AUC or AUC-PR. The proposed methodology is adapted to the case of bankruptcy prediction.