Magni, Carlo Alberto (2004): Rating and ranking firms with fuzzy expert systems: the case of Camuzzi.
Download (195kB) | Preview
In this paper we present a real-life application of a fuzzy expert system aimed at rating and ranking firms. Unlike standard DCF models, it integrates financial, strategic and business determinants and processes both quantitative and qualitative variables. Twenty-one value drivers are defined, concerning the target firm (strategic assets in place and expected financial performance), the acquisition (synergies, quality of management) and the sector (intensity of competition, entry barriers). Their combination via “if-then” rules leads to the definition of an output represented by a real number in the interval [0,1]. Such a number expresses the valuegenerating power of the target firm inclusive of synergies with the bidder (Strategic Enterprise Value). The system may be used for rating and ranking firms operating in the same sector. A regression analysis using hostile takeovers multiples may be employed to translate the score into price. The real-life case refers to Camuzzi (a natural gas distributor), acquired by Enel, the Italian ex monopolist of electric energy.
|Item Type:||MPRA Paper|
|Original Title:||Rating and ranking firms with fuzzy expert systems: the case of Camuzzi|
|Keywords:||Corporate finance, firm, rating, ranking, expert system, fuzzy logic, evaluation|
|Subjects:||M - Business Administration and Business Economics; Marketing; Accounting > M0 - General
G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology; Computer Programs > C88 - Other Computer Software
G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General
C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology; Computer Programs > C80 - General
|Depositing User:||Carlo Alberto Magni|
|Date Deposited:||22. Nov 2007 16:36|
|Last Modified:||13. Feb 2013 22:38|
Abdel-Kader, M.G., Dugdale, D. and Taylor, P. (1998), Investment Decisions in Advanced Manufacturing Technology: A Fuzzy Set Theory Approach, Ashgate Publishing Company.
Black, M. (1937), Vagueness: An Exercise in Logical Analysis, Philosophy of Science, 4, 427–55.
Black, F. and Scholes, M. (1973), The pricing of options and corporate liabilities, Journal of Political Economy 81, 637–654.
Bojadziev, G. and Bojadziev M. (1997). Fuzzy logic for business, finance, and management, World Scientific Publishing Co. Pte. Ltd.
Brealey, R. A. and Myers, S. C. (2000), Principles of Corporate Finance, Irwin McGraw-Hill.
Collis, D. and Montgomery, C. (1995), Competing on Resources: Strategy in the 1990’s, Harvard Business Review, 73, 119–128, July-August.
Copeland and Antikarov (2001), Real Options: a practitioner’s guide, New York: Texere.
Copeland, T.E. and Weston, J.F. (1988), Financial Theory and Corporate Policy, New York: John Wiley & Sons, third edition
Damodaran, A. (1994), Damodaran on Valuation, New York: John Wiley & Sons.
Damodaran, A. (1999), Applied Corporate Finance: A User’s Manual, New York: John Wiley & Sons.
Dixit, A. and Pindyck, R. (1994). Investment under Uncertainty, Princeton NJ: Princeton University Press.
Facchinetti, G. and Mastroleo, G. (2001), A fuzzy system for the evaluation of insurance fraud, Proceedings of IV Meeting Italo-Spagnolo di Matematica Finanziaria ed Attuariale, 293–302 Alghero, June 28-30.
Facchinetti, G., Mastroleo, G. and Paba, S. (2000), A fuzzy approach to the geography of industrial districts, Proceedings of the 2000 ACM Symposium on Applied Computing, 514–518, Como , March 19-21.
Facchinetti, G., Cosma, S., Mastroleo, G. and Ferretti, R. (2001), A fuzzy credit rating approach for small firm bank creditworthiness. An Italian case, Proceedings of CIMA 2001, International ICSC-NAISO Congress on Computational Intelligence: Methods & Applications, Bangor, Wales, UK, June 19–22.
Fernández, P. (2002), Valuation Methods and Shareholder Value Creation, San Diego: Academic Press.
Gilovich, T., Griffin, D. and Kahneman, D. (eds.) (2002), Heuristic and Biases. The Psychology of Intuitive Judgment, Cambridge, UK: Cambridge University Press.
Gigerenzer, G. and Selten, R. (eds.) (2001), Bounded Rationality. The Adaptive Toolbox, The MIT Press: Cambridge, Massachussets, USA.
Gigerenzer, G., Todd, P.M. and the ABC Research Group (1999), Simple Heuristics That Make Us Smart, New York: Oxford University Press.
Jensen, M.C. and Meckling, W.H. (1976), Theory of the firm: Managerial behavior, agency costs and ownership structure, Journal of Financial Economics, 3 (4), 305–360, Winter.
Kosko, B. (1986), Fuzzy Cognitive Maps, International Journal of Man-Machine Studies, 24, 65–75, January.
Kosko, B. (1990), Fuzziness vs. Probability, International Journal of General Systems, 17, 211–240.
Kosko, B. (1993), Fuzzy Thinking: The New Science of Fuzzy Logic, Hyperion.
Lander, D.M. and Pinches, G.E. (1998), Challenges to the Practical Implementation of Modelling and Valuing Real Options, The Quarterly Review of Economics and Finance, 38, Special Issue, 537–567.
Liu, J., Nissim, D. and Thomas, J. (2002), Equity Valuation Using Multiples, Journal of Accounting Research, 40, 135–173.
Magni, C.A. (1998), Aspetti quantitativi e qualitativi nella valutazione di un'opzione di investimento, Finanza, marketing e produzione, 3, 123–149.
Magni, C.A. (2002), Investment Decisions in the Theory of Finance: Some Antinomies and Inconsistencies, European Journal of Operational Research, 137 (1), 206–217.
Magni, C.A. (2003), Decomposition of Net Final Values: Systemic Value Added and Residual Income, Bulletin of Economic Research, 55 (2), 149–176.
Magni, C.A., (2004) Modelling excess profit, Economic Modelling 21/3, 595-617.
Magni, C.A., Mastroleo, G., and Facchinetti, G. (2002), A Fuzzy Expert System for Solving Real Option Decision Processes, Fuzzy Economic Review,VI (2), 51–73.
Magni, C.A., Mastroleo, G., Vignola, M. and Facchinetti, G. (2004), Strategic options and expert systems: a fruitful marriage, Soft Computing, 8 (3), 179–192, January.
McNeil, D. and Freiberger, D. (1994), Fuzzy Logic, New York: Touchstone-Simon and Schuster.
Miles, J.A. and Ezzel, J.R. (1980). The Weighted Average Cost of Capital, Perfect Capital Markets and Project Life: A Clarification. Journal of Financial and Quantitative Analysis, 15, 719–730.
Miles, J.A. and Ezzel, J.R. (1985), Reformuling Tax Shield Valuation: A Note, Journal of Finance, 40, 1485–1492.
Myers, S.C. (1974), Interactions of Corporate Financing and Investment Decisions–Implications for Capital Budgeting. Journal of Finance, 29, 1–25.
Porter, M.E. (1980). Competitive Strategy, New York: The Free Press.
Porter, M.E. (1985), Competitive Advantage, New York: The Free Press.
Ruback, R.S. (2002), Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows, Financial Management, 31 (2), 85–103, Summer.
Simon, H.A. (1955), A behavioral model of rational choice, Quarterly Journal of Economics, 69, 99–118.
Simon, H.A. (1956), Rational choice and the structure of environment, Psychological Review, 63, 129–138.
Sloan, R.G. (1996), Using earnings and free cash flow to evaluate corporate performance, Journal of Applied Corporate Finance, 9 (1), 70–78, Spring.
Sloman, S.A. (1996), The empirical case for two systems of reasoning, Psychological Bulletin, 119, 3–22.
Sloman, S.A. (2002), Two Systems of Reasoning, In Heuristic and Biases. The Psychology of Intuitive Judgment, See Gilovich, Griffin and Kahneman (2002).
Sorensen, E.H. and Wiliamson, D.A. (1985), Some evidence on the value of the dividend discount model, Financial Analysts Journal, 41, 60–69.
Sugeno, M. (ed.) (1985), Industrial Application of Fuzzy Control, New York: North-Holland.
Stewart, G.B. (1991), The Quest for Value: The EVA Management Guide, New York: HarperCollins Publishers.
Tanaka, K. (1997), An Introduction to Fuzzy Logic for Practical Applications, New York: Springer-Verlag
Von Altrock C. (1997), Fuzzy Logic and Neurofuzzy Applications in Business and Finance, Prentice-Hall
Zadeh, L.A. (1965), Fuzzy Sets, Information and Control, 8, 338–353.
Zadeh, L.A. (1968), Probability measure of fuzzy events, Journal of Mathematical Analysis and Applications, 23 (2), 421-427, August.
Zebda, A. (1989), Fuzzy Set Theory and Accounting, Journal of Accounting Literature, 8, 76–105.
Zebda, A. (1991), The Problem of Ambiguity and Vagueness in Accounting, Behavioural Research in Accounting, 3, 117–145.
Zimmermann H.J. (1996), Fuzzy Set Theory and its Applications, third Edition, Boston, MA: Kluwer Academic Publishers.
Zimmermann H.J. (1997), Operators in Models of Decision Making, In D.Dubois, H.Prade, R.R.Yager (eds.), Fuzzy Information Engineering: a guided tour of application, New York: John Wiley & Sons.
Zimmermann, H.J. and Zysno P. (1980), Latent Connectives in Human Decision Making, Fuzzy Sets and Systems, 4, 37–51.