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

  • Stefano Malagoli
  • Carlo Alberto Magni
  • Giovanni Mastroleo

Purpose -The purpose of the paper is to focus on the rating, ranking and valuing of firms. Design/methodology/approach -Fuzzy logic and expert systems are used in order to provide a score for the firm(s) under consideration, representing the firm value-creating power. Findings -The fuzzy expert system introduced is capable of dealing with both quantitative and qualitative variables and integrates financial, managerial and strategic variables. A sensitivity analysis corroborates the model. Research limitations/implications - The system is apt to rate and rank firms within a sector. Some regression analysis can lead to a determined price for the target firm. Practical implications - The expert system may be used by rating agencies for ranking firms, and by financial analysts and potential buyers to furnish a price for acquisition. Originality/Value -The use of a fuzzy expert system for ranking firms within a sector and pricing firms is a first attempt at an alternative way of measuring performance and value.

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Article provided by Emerald Group Publishing in its journal Managerial Finance.

Volume (Year): 33 (2007)
Issue (Month): 11 ()
Pages: 836-852

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Handle: RePEc:eme:mfipps:v:33:y:2007:i:11:p:836-852
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  1. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. 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.
  3. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
  4. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
  5. Carlo Alberto Magni, 2009. "A fuzzy expert system for solving real-option decision processes," PROYECCIONES FINANCIERAS Y VALORACION 005677, MASTER CONSULTORES.
  6. Carlo Alberto Magni & Giovanni Mastroleo & Marina Vignola & Gisella Facchinetti, 2009. "Strategic options and expert systems: a fruitful marriage," PROYECCIONES FINANCIERAS Y VALORACION 006122, MASTER CONSULTORES.
  7. Richard S Ruback, 2002. "Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows," Financial Management, Financial Management Association, vol. 31(2), Summer.
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