Financial Risk Prediction Based On Case Based Reasoning Methodology

Abstract

Nowadays, there is a need for decision-making systems which can make recommendations for companies to carry out bankruptcy risk analysis, to take measures for recovery from bankruptcy and to maintain their growth plans and assets. In this way, a decision support system can be developed that will minimize the bankruptcy risk and play an active role in the growth of firms by increasing their productivity. Such a decision support system will examine the changes in the financial data of the firms and present recommendations to companies that have a risk of bankruptcy. In order to provide a solution to this need, a methodology that can make risk assessment of companies is suggested by using the Case Based Reasoning technique. This technique is applied on the financial statement data of the companies (balance sheet data). Within the scope of this research, an illustrative application of the proposed method has been developed. The performance of the methods is tested on the balance sheet data of the BIST Istanbul companies. The results we have obtained indicate that financial risk estimation can be carried out successfully with the method we proposed.