Using genetic algorithm based knowledge refinement model for dividend policy forecasting

  • Authors:
  • Chaehwan Won;Jinhwa Kim;Jae Kwon Bae

  • Affiliations:
  • School of Business, Sogang University, #1 Sinsu-dong, Mapo-gu, Seoul 121-742, Republic of Korea;School of Business, Sogang University, #1 Sinsu-dong, Mapo-gu, Seoul 121-742, Republic of Korea;Department of Management Information Systems, Keimyung University, #1095 Dalgubeoldaero, Dalseo-Gu, Daegu 704-701, Republic of Korea

  • Venue:
  • Expert Systems with Applications: An International Journal
  • Year:
  • 2012

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Abstract

Dividend policy is one of most important managerial decisions affecting the firm value. Although there are many studies regarding decision-making problems, such as credit policy decisions through bankruptcy prediction and credit scoring, there is no research, to our knowledge, about dividend prediction or dividend policy forecasting using machine learning approaches in spite of the significance of dividends. For dealing with the problems involved in literature, we suggest a knowledge refinement model that can refine the multiple rules extracted through rule-based algorithms from dividend data sets by utilizing genetic algorithm (GA). The new technique, called ''GAKR (genetic algorithm knowledge refinement)'', aims to combine the advantages of both knowledge consolidation and GA. The main result of the cross-validation procedure is the average accuracy rate of prediction in the five sets over the five iterations. The experiments show that GAKR model always outperforms other models in the performance of dividend policy prediction; we can predict future dividend policy more correctly than any other models. The major advantages of GAKR model can be summarized as follows: (1) Classification process of GAKR can be very fast with a compact set of rules. In other words, fast training mechanism of GAKR is possible regardless of data set sizes. (2) Multiple rules extracted by GAKR development process are much simpler and easier to understand. Moreover, GAKR model can discriminate redundant rules and inconsistent rules.