Using multimodal learning and deep generative models for corporate bankruptcy prediction

Textual data from financial filings, e.g., the Management's Discussion \& Analysis (MDA) section in Form 10-K, has been used to improve the prediction accuracy of bankruptcy models. In practice, however, we cannot obtain the MDA section for all public companies. The two main reasons for the lack of MDA are: (i) not all companies are obliged to submit the MDA and (ii) technical problems arise when crawling and scrapping the MDA section. This research introduces for the first time, to the best of our knowledge, the concept of multimodal learning in bankruptcy prediction models to solve the problem that for some companies we are unable to obtain the MDA text. We use the Conditional Multimodal Discriminative (CMMD) model to learn multimodal representations that embed information from accounting, market, and textual modalities. The CMMD model needs a sample with all data modalities for model training. At test time, the CMMD model only needs access to accounting and market modalities to generate multimodal representations, which are further used to make bankruptcy predictions. This fact makes the use of bankruptcy prediction models using textual data realistic and possible, since accounting and market data are available for all companies unlike textual data. The empirical results in this research show that the classification performance of our proposed methodology is superior compared to that of a large number of traditional classifier models. We also show that our proposed methodology solves the limitation of previous bankruptcy models using textual data, as they can only make predictions for a small proportion of companies.