AN ALTERNATIVE APPROACH TO FIRMS' EVALUATION: EXPERT SYSTEMS AND FUZZY LOGIC

Carlo Alberto Magni, Stefano Malagoli and Giovanni Mastroleo
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Stefano Malagoli: Dipartimento di Economia Politica, Università di Modena e Reggio Emilia, 41000 Modena, Italy

International Journal of Information Technology & Decision Making (IJITDM), 2006, vol. 05, issue 01, 195-225

Abstract: Discounted cash flow techniques are the generally accepted methods for valuing firms. Such methods do not provide explicit acknowledgment of the value determinants and overlook their interrelations. This paper proposes a different method of firm valuation based on fuzzy logic and expert systems. It does represent a conceptual transposition of discounted cash flow techniques but, unlike the latter, it takes explicit account of quantitative and qualitative variables and their mutual integration. Financial, strategic and business aspects are considered by focusing on 29 value drivers that are combined together via "if–then" rules. The output of the system is a real number in the interval [0, 1], which represents the value-creation power of the firm. To corroborate the model a sensitivity analysis is conducted. The system may be used for rating and ranking firms as well as for assessing the impact of managers' decisions on value creation and as a tool of corporate governance.

Keywords: Firms' evaluation; fuzzy logic; expert system; rating; acquisition; sensitivity analysis (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (8)

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Working Paper: An alternative approach to firms’ evaluation: expert systems and fuzzy logic (2004)
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DOI: 10.1142/S0219622006001812

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