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

• Published in: Managerial finance Vol. 33; no. 11; pp. 836 - 852
• Main Authors: Malagoli, Stefano, Magni, Carlo Alberto, Mastroleo, Giovanni
• Format: Journal Article
• Language: English
• Published: Patrington Emerald Group Publishing Limited 01.01.2007
• Subjects: Borrowing; Capital structure; Competition; Competitive advantage; Costs; Decision making; Economic statistics; Economic theory; Fuzzy logic; Market value; Product quality; Ratings & rankings; Regression analysis; Stockholders; Studies; Variables
• ISSN: 0307-4358; 1758-7743
• DOI: 10.1108/03074350710823818

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.