21 Feb 2011 13:01

SPARK creates scoring system to assess likelihood of a company‘s unreliability

Russia’s largest and unique corporate information system SPARK has been upgraded to incorporate a scoring system for assessing the companies’ compliance with due diligence practices.

Using its SPARK system, Interfax has started calculating the due diligence index - an indicator applied to identify shadow companies.

The index is chosen from a range of 100 points, with “100” indicating with a high degree of probability that the company in question was not formed for its statutory purpose, and that it was merely a “transaction instrument” with no significant assets or operations of its own, or an “abandoned” asset.

Interfax was devising its new scoring model for SPARK in partnership with the Cost Management Institute - a leading Russian think-tank and generator of mathematical programming for economic analysis.

“Powered with the due diligence index, a company will feel better protected from corrupt counteragents, who may backtrack on the obligations assumed and vanish. The government, in turn, will get an instrument of tracking down companies engaged in shady deals,” said Interfax Deputy General Director Roman Laba.

“The accuracy of evaluation is high enough already, standing at 88.44% in a test sampling for companies, whose financials are on the SPARK system, and at 84.18% for companies, whose accounts are not available,” said Cost Management Institute General Director Ilya Munerman.

International experience was taken into account, details were studied, pointing to the target company’s suspected shady deals, and various mathematical models were applied while assessing these factors.

The model devised was checked in representative sampling, whereby companies with the guaranteed “good” reputation were selected alongside an equal number of confirmed shadow firms, all of which helped take each factor into account.

The factor space of the Due Diligence Index covers various parameters, including the use of the most recent accounts, filed with tax authorities; attention to individual indices in a company’s financial report and their dynamics, and whether a mass director or mass address were involved in registration.

The index is calculated using such analytical methods as logistic regression, classification and regression trees, as well as models based on nondistinct hybrid neural networks.
The model for identifying shadow firms, available through SPARK, will subsequently be upgraded and perfected, with users’ requests taken into account.

*** SPARK is the largest and most extensive system, complete with the most advanced analytical instruments for assessing risks, market environment and companies’ investment appeal. Devised by Interfax Group, it is a comprehensive source of information about all legal entities, registered in Russia, Ukraine and Kazakhstan.