Prediction of Chinese Listed Companies' Credit Risk Based on Mixed Logit Model and Factor Analysis

Abstract

This paper used mixed logit model to predict credit risk of listed companies in China. In order to reduce the difficulty in dealing with the facts of correlation and multi-dimension of the financial indexes of listed companies and meanwhile to ensure that the data are not lost, we introduced factor analysis to the mixed logit equation and constructed a Factor Analysis Mixed Logit Model. Fifteen factors were extracted from original financial indexes, and four main factors which effect dramatically were selected to substitute the original financial indexes as explanatory variables. The results show that the new approach is reliable, and general prediction accuracy is higher than 80%.