Financial early warning system model and data mining application for risk detection

Authors:
Ali Serhan Koyuncugil;Nermin Ozgulbas
Affiliations:
Capital Markets Board of Turkey, Research Department, Eskisehir Yolu 18.km., Ankara, Turkey;Baskent University, School of Health Sciences, Department of Healthcare Management, Eskisehir Yolu 20.km., Ankara, Turkey
Venue:
Expert Systems with Applications: An International Journal
Year:
2012

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Abstract

One of the biggest problems of SMEs is their tendencies to financial distress because of insufficient finance background. In this study, an early warning system (EWS) model based on data mining for financial risk detection is presented. CHAID algorithm has been used for development of the EWS. Developed EWS can be served like a tailor made financial advisor in decision making process of the firms with its automated nature to the ones who have inadequate financial background. Besides, an application of the model implemented which covered 7853 SMEs based on Turkish Central Bank (TCB) 2007 data. By using EWS model, 31 risk profiles, 15 risk indicators, 2 early warning signals, and 4 financial road maps has been determined for financial risk mitigation.