Evolving classifiers to model the relationship between strategy and corporate performance using grammatical evolution

Abstract

This study examines the potential of grammatical evolution to construct a linear classifier to predict whether a firm’s corporate strategy will increase or decrease shareholder wealth. Shareholder wealth is measured using a relative fitness criterion, the change in a firm’s marketvalue- added ranking in the Stern-Stewart Performance 1000 list, over a four year period, 1992-1996. Model inputs and structure are selected by means of grammatical evolution. The best classifier correctly categorised the direction of performance ranking change in 66.38% of the firms in the training set and 65% in the out-of-sample validation set providing support for a hypothesis that changes in corporate strategy are linked to changes in corporate performance.