China Corporate Bankruptcy Study

Under a competitive environment, corporate bankrupt as wellas its establishment is regular event. But it is not the case in China.Bankruptcy has been dilemma for all the stockholders because ofemployee settlement prior to other counterparts: the bankruptcy lawstipulates that failure corporates should pay the deferred salary and taxesbefore their insolvency. if these provisions have been met, there is noresidual leaved for stockholders. For this reason, stockholders often haveno motivation in the bankruptcy process.Changes have taken place after the establishment of essential labor andsocial security system in2000. Unemployment has not been an obstaclefor the closure of corporate from then on. Government can provide basicunemployment insurance. Stockholders' residual claim become clearerand stronger: banks as creditors are strengthening their risk managementand begin to reject some loan request, institutional shareholders havedifferent opinions for corporate operation; managers are pursuing theirbenefits as far as they can. These facts will exert what kind of influence, through which channel? This empirical study based on statistics bureau'ssurvey can give some answers.Corporate governance theories imply that conflict between stockholdersis usual. In the paper, we demonstrate conflict in the bankruptcy processwill become severer because bankruptcy terminates the development of acorporate, making asset distribution as the first importance to relevantparts. We also reveal behavior characteristics of stockholders whichaccord to classical corporate governance theory under failureenvironment.Bankruptcy researchers often employ financial ratio model to predict afailure. These models have no theory foundation, so the results areunstable. As for general corporate governance research, it falls short ofbankruptcy background and can't give prominence to the conflictrelationship between stockholders. Our models draw on the two methodsand engage in a hybrid research.Our research uses bankruptcy prediction model as its tool to analysisinterest confliction in corporation governance context. We find thatindividual shareholders is positive than other shareholders; commercialbank as creditors have strong influence on the bankruptcy decision;managers in the SOE impose more influence on the bankruptcy decisionthan the counterpart in the private firms.