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The use of fuzzy logic and expert systems for rating and pricing firms: a new perspective on valuation

Author

Listed:
  • Malagoli, Stefano
  • Mastroleo, Giovanni
  • Magni, Carlo Alberto

Abstract

This paper presents an expert system aimed at evaluating firms and business units. It makes use of fuzzy logic and integrates financial, strategic, managerial aspects, processing both quantitative and qualitative information. Twenty-nine value drivers are explicitly taken into account and combined together via “if-then” rules to produce an output. The output is a real number in the interval [0,1], representing the value-creation power of the firm. The system may be used for rating, ranking and pricing firms as well as for assessing the impact of managers’ decisions on value creation and as a tool of corporate governance.

Suggested Citation

  • Malagoli, Stefano & Mastroleo, Giovanni & Magni, Carlo Alberto, 2005. "The use of fuzzy logic and expert systems for rating and pricing firms: a new perspective on valuation," MPRA Paper 11958, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:11958
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    References listed on IDEAS

    as
    1. Magni, C. A. & Mastroleo G. & Facchinetti, G., 2001. "A Fuzzy expert system for solving ReaL-Option decision processes," Fuzzy Economic Review, International Association for Fuzzy-set Management and Economy (SIGEF), vol. 0(2), pages 51-73, November.
    2. Richard S Ruback, 2002. "Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows," Financial Management, Financial Management Association, vol. 31(2), Summer.
    3. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    4. Richard G. Sloan, 1996. "Using Earnings And Free Cash Flow To Evaluate Corporate Performance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(1), pages 70-79, March.
    5. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. Carlo Alberto Magni & Giovanni Mastroleo & Marina Vignola & Gisella Facchinetti, 2009. "Strategic options and expert systems: a fruitful marriage," Proyecciones Financieras y Valoración 6122, Master Consultores.
    7. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    8. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Magni, Carlo Alberto, 2004. "Rating and ranking firms with fuzzy expert systems: the case of Camuzzi," MPRA Paper 5889, University Library of Munich, Germany.

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    More about this item

    Keywords

    Firm valuation; fuzzy logic; expert system; acquisition; rating; pricing;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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