Vol. 5 No. 4 (2017): BUSINESS & MANAGEMENT STUDIES: AN INTERNATIONAL JOURNAL
Articles

ESTIMATION OF BANKRUPTCY PROBABILITIES BY USING FUZZY LOGIC AND MERTON MODEL: AN APPLICATION ON USA COMPANIES

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  • Çiğdem ÖZARİ
Çiğdem ÖZARİ
İstanbul Aydın University
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DOI: https://doi.org/10.15295/bmij.v5i4.168

Published 2018-01-07

How to Cite

ÖZARİ, Çiğdem. (2018). ESTIMATION OF BANKRUPTCY PROBABILITIES BY USING FUZZY LOGIC AND MERTON MODEL: AN APPLICATION ON USA COMPANIES. Business & Management Studies: An International Journal, 5(4), 211–234. https://doi.org/10.15295/bmij.v5i4.168

Abstract

In this study, we have worked on developing a brand-new index called Fuzzy-bankruptcy index. The aim of this index is to find out the default probability of any company X, independent from the sector it belongs. Fuzzy logic is used to state the financial ratiointerruption change related with time and inside different sectors, the new index is created to eliminate the number of the relativity of financial ratios. The four input variables inside the five main input variables used for the fuzzy process, are chosen from both factor analysis and clustering and the last input variable calculated from Merton Model. As we analyze in the past cases of the default history of companies, one could explore different reasons such as managerial arrogance, fraud and managerial mistakes, that are responsible for the very poor endings of prestigious companies like Enron, K-Mart. Because of these kind of situations, we try to design a model which one could be able to get a better view of a company’s financial position, and it couldbe prevent credit loan companies from investing in the wrong company and possibly from losing all investments using our Fuzzy-bankruptcy index.

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