Financial Early Warning System for Risk Detection and Prevention from Financial Crisis

Financial Early Warning System for Risk Detection and Prevention from Financial Crisis

Nermin Ozgulbas (Baskent University, Turkey) and Ali Serhan Koyuncugil (Capital Markets Board of Turkey, Turkey)
Copyright: © 2013 |Pages: 32
DOI: 10.4018/978-1-4666-2455-9.ch082
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Risk management has become a vital topic for all enterprises especially in financial crisis periods. All enterprises need systems to warn against risks, detect signs and prevent from financial distress. Before the global financial crisis that began 2008, small and medium-sized enterprises (SMEs) have already fought with important financial issues. The global financial crisis and the ensuring flight away from risk have affected SMEs more than larger enterprises When we consider these effects, besides the issues of poor business performance, insufficient information and insufficiencies of managers in finance education, it is clear that early warning systems (EWS) are vital for SMEs for detection risk and prevention from financial crisis. The aim of this study is to develop and present a financial EWS for risk detection via data mining. For this purpose, data of SMEs listed in Istanbul Stock Exchange (ISE) and Chi-Square Automatic Interaction Detector (CHAID) Decision Tree Algorithm were used. By using EWS, we determined the risk profiles and risk signals for risk detection and road maps for risk prevention from financial crisis.
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Smes And Financial Issues

SMEs are defined as enterprises in the non-financial business economy (NACE, Nomenclature statistique des activités économiques dans la Communauté européenne (Statistical classification of economic activities in the European Community)) that employ less than 250 persons. The complements of SMEs - enterprises that employ 250 or more persons -are large scale enterprises (LSEs). Within the SME sector, the following size-classes are distinguished:

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