13: Artificial Intelligence in Financial Management
- Page ID
- 150170
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Introduction: Artificial Intelligence in Financial Management
Artificial intelligence (AI) is reshaping financial management by combining automation, prediction, and analytics. Modern finance teams use machine learning, natural-language processing, and related methods to process large data sets, detect patterns, forecast outcomes, and support faster and more consistent decisions. When implemented with appropriate governance and oversight, AI can lower operating costs, reduce errors and fraud, and improve strategic planning. At the same time, the use of AI introduces important ethical, legal, and regulatory considerations that financial managers must understand and actively manage.
Learning Outcomes
- Identify common applications of artificial intelligence in finance, including risk and fraud management, investing support, forecasting, and compliance.
- Evaluate how AI can influence financial performance and firm value through improved efficiency, forecasting accuracy, and risk assessment.
- Discuss ethical and governance challenges associated with algorithmic tools, including bias, transparency, privacy, and accountability.
Why This Matters
AI matters in managerial finance because it affects the two inputs that drive valuation: expected cash flows and the rate used to discount those cash flows. Improvements in forecasting can reduce estimation error in revenues, costs, and working-capital assumptions, leading to better capital budgeting and NPV decisions. Stronger risk detection and control can protect cash flows from loss events, reduce volatility, and potentially influence the firm’s cost of capital.
In practice, the financial value of AI is realized not by adopting new tools for their own sake, but by improving how managers allocate capital, price risk, monitor performance, and enforce internal controls. Throughout this chapter, the focus remains on how AI supports these managerial decisions rather than on the technical details of model construction.