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A Fuzzy Decision Aiding Method for the Assessment of Corporate Bankruptcy

Author

Listed:
  • Matsatsinis, M.
  • Kosmidou, K.
  • Doumpos, M.
  • Zopounidis, C.

    (Technical University of Crete)

Abstract

In many real world problems it is often difficult to find dependencies between the variables of a process or more general of a system, dependencies which can be used for controlling a plant, forecasting a value or classifying a group of objects into pre-defined classes. Since in many cases, analytic dependencies are unknown or very difficult to set up, the formulation of dependencies with the help of fuzzy rules offers a useful alternative. This paper presents the combined use of a fuzzy rule generation method and a data mining technique for financial risk assessment. The case of business failure is considered here and the classification of the firms into two classes is sought. Initially, a method for the generation of fuzzy rules is used. Then these rules are imported to a data mining technique so as the firms can be classified into as bankrupt or non-bankrupt. The fuzzy method supports the discovery of relevant dependencies by the automatic generation of if/then rules on the basis of expert knowledge, while the data mining technique, with the help of a fuzzy rule-based classifier, assigns an object to different classes on the basis of various different characteristics (financial ratios). Finally, a thorough comparison with discriminant analysis, logit and probit analysis is performed based on the same sample.

Suggested Citation

  • Matsatsinis, M. & Kosmidou, K. & Doumpos, M. & Zopounidis, C., 2003. "A Fuzzy Decision Aiding Method for the Assessment of Corporate Bankruptcy," Fuzzy Economic Review, International Association for Fuzzy-set Management and Economy (SIGEF), vol. 0(1), pages 13-23, May.
  • Handle: RePEc:fzy:fuzeco:v:viii:y:2003:i:1:p:13-23
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    Cited by:

    1. Morillas, Antonio & Díaz, Bárbara, 2007. "Qualitative Answering Surveys And Soft Computing," Fuzzy Economic Review, International Association for Fuzzy-set Management and Economy (SIGEF), vol. 0(1), pages 3-19, May.

    More about this item

    Keywords

    Fuzzy set theory; Bankruptcy prediction; Data mining; Multivariate statistical analysis; Decision support systems;

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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