An Alternative Approach to Firms' Evaluation: Expert Systems and Fuzzy Logic

International Journal of Information Technology and Decision Making, Vol. 5, No. 1, pp. 195-225, March 2006

22 Pages Posted: 7 Feb 2020

See all articles by Carlo Alberto Magni

Carlo Alberto Magni

Università degli studi di Modena e Reggio Emilia (UNIMORE) - School of Doctorate E4E (Engineering for Economics-Economics for Engineering)

Stefano Malagoli

Università degli studi di Modena e Reggio Emilia (UNIMORE)

Giovanni Mastroleo

Università degli Studi della Calabria

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 twenty-nine 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, pricing

JEL Classification: C8, C80, C88, G3, G31, G32, G34, M2

Suggested Citation

Magni, Carlo Alberto and Malagoli, Stefano and Mastroleo, Giovanni, An Alternative Approach to Firms' Evaluation: Expert Systems and Fuzzy Logic. Available at SSRN: https://ssrn.com/abstract=1031965

Carlo Alberto Magni (Contact Author)

Università degli studi di Modena e Reggio Emilia (UNIMORE) - School of Doctorate E4E (Engineering for Economics-Economics for Engineering) ( email )

Italy

Stefano Malagoli

Università degli studi di Modena e Reggio Emilia (UNIMORE) ( email )

Viale A. Allegri 9
Modena 42121

Giovanni Mastroleo

Università degli Studi della Calabria ( email )

Italy

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