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Innovative Empirical Model for Predicting National Banks’ Financial Failure with Artificial Intelligence Subset Data Analysis in the United States

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  • Kasztelnik Karina

    (PhD, MBA, CPA, CTP, Colorado State University - Global Campus, Aurora, CO.)

Abstract

The principal objective of this research study was to investigate the impact of the Great Economic Recession of 2008 on national banks’ equity investment valuations and create an empirical model for predicting national banks’ financial failure in the United States. The focal period of the study was from 2009 to 2012, and public data sources used. It is not known to what extent national banks’ stock value investments are based on the return on equity. This causal-comparative study explores the degree to which national banks’ value investment in terms of the price to earnings ratio impacts their return on equity and the extent to which these banks’ stock value investment in terms of dividend yield impacts their return on equity. We used statistical modeling and the machine learning model to find hidden patterns in the input data. The principal finding of this research is that the median earnings per share in 2012 and the dividend yield in 2009 were significantly larger than the median return on equity in 2009 and 2012. Additionally, the dividend yield in 2012 was significantly smaller than the median return on equity in 2012. These findings can contribute to improving our understanding of how banks can predict financial failure using the new machine learning features of artificial intelligence to build an early warning system with the innovative risk measurement tool.

Suggested Citation

  • Kasztelnik Karina, 2020. "Innovative Empirical Model for Predicting National Banks’ Financial Failure with Artificial Intelligence Subset Data Analysis in the United States," Open Economics, De Gruyter, vol. 3(1), pages 98-111, January.
    • Handle: RePEc:vrs:openec:v:3:y:2020:i:1:p:98-111:n:1
    DOI: 10.1515/openec-2020-0106
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    References listed on IDEAS

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    1. Darrell Duffie, 2010. "The Failure Mechanics of Dealer Banks," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 51-72, Winter.
    2. Mary C Daly & Elliot M Marks, 2014. "The Labor Market in the Aftermath of the Great Recession," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 49(3), pages 149-155, July.
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    More about this item

    Keywords

    ROE; Equity Valuations; Financial Institutions; Economic Recession; Dividend Yield; Price to Earnings; Banks;
    All these keywords.

    JEL classification:

    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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