Financial performance evaluation using self-organizing maps: The case of Korean listed companies

The amount of financial information in sophisticated large data bases is huge and makes interfirm performance comparisons very difficult or at least very time consuming. The purpose of this paper is to investigate whether neural networks in the form of self-organizing maps (SOM) can be successfully employed to manage the complexity for competitive financial benchmarking. SOM is known to be very effective to visualize results by projecting multi-dimensional financial data into two-dimensional output space. Using the SOM, we overcome the problems of finding an appropriate underlying distribution and the functional form of data when structuring and analyzing a large data base, and show an efficient procedure of competitive financial benchmarking through clustering firms on two-dimensional visual space according to their respective financial competitiveness. For the empirical purpose, we analyze the data base of annual reports of 100 Korean listed companies over the years 1998, 1999, and 2000.