Research On Financial Distress Forecasting And Credit Risk Assessment Of Listed Enterprise Groups

With the economic marketization and globalization, more and more companies arefacing challenges while they are trying the diversification strategy, or the trans-regionaloperation, or even transnational operation, which gradually developed an neworganization form—the enterprise group. Enterprise groups have huge impact to thesocio-economic development because of their large-scale organization and assets, andalso because they involve wide industries.Enterprise development of the group is a double-edged sword. It brings big profitsto the company while cover a huge business risk. In recent years, there have been somany cases that the enterprise groups got into financial distress which led to the furthercredit distress. And this not only blocked the enterprises' operation and development,but also caused strong responses in the socio-economic area. Thus, it's obviously withgreat importance to do the financial distress forecasting (the enterprise group's internalbehavior) and credit risk assessment (enterprise group's external behavior), which willhelp take precautions before it is too late. As there are kinds of affiliate transactionsbetween the parent and subsidiary companies, subsidiary companies themselves, oreven and sub-subsidiary companies, the complexity and invisibility of the financialdistress and credit risk are much larger. Thus, how to cope with the financial distress tolower the credit risk is a key link in the business risk controlling of enterprise groups,and is also the new challenge faced by all the enterprise groups.Based on all above, this paper studied the risk controlling problems combined withthe financial distress forecasting and credit risk assessment of enterprise groups, hopingprovide some new methods and ideas about the financial management of enterprisegroups themselves and commercial banks' management to their enterprise groupsclients. The mainline of this paper is as follow.Firstly, as the affiliate transaction is a main characteristic of the enterprise groups,it has important impact to the financial status and credit risk of the enterprise groups.This paper analyzed the categories and frequency characteristic of affiliate transaction,as well as the logical relationship between the affiliate transaction and credit risk. Thenwith listed companies in China's enterprise groups as the study sample, a structural equation model was used to analyze the relationship between affiliate transactionpreferences, abnormal degree of financial and the behavior of corporate debt.Secondly, this paper constructed a financial distress forecasting indicator systembased on the filtering of the general financial indicators and an introduction of theenterprise groups' characteristic indexes. What's more, an empirical analysis was donein this paper on financial crisis distress forecasting of listed enterprise groups in China'swith a Logistic model and a neural network model respectively. And there's acomparison about the results of financial crisis distress forecasting.At last, for the credit risk assessment of enterprise groups, this paper constructedthe indicator system for their credit risk assessment by adding financial indicators inappropriately and bringing in some relevant non-financial indicators, based on theapplication of financial distress forecasting indicator system of enterprise groups.Furthermore, three methods—statistical methods (Logistic), non-statistical method(SVM), and CLL assessment model which could depicts the credit risk's characteristicsof enterprise groups—were used respectively to assess the credit risk of enterprisegroups. Then we tested and compared these three methods within the sample,concluding that the accuracy of credit risk assessment was much higher with theintroduction of the characteristic indicators and governance indicators. Last but not least,we compared the applicability of three methods.The study shows that there is significant relationship between financial distress andcredit risk. The financial distress is a source of credit risk, and also an importantingredient of credit risk, while credit risk is the accumulation and extension of financialdistress. Credit risk depicts the operating and development prospects of enterprise froma long-term perspective. Through the financial distress forecasting Enterprise groupscan take effective measures, and ease or even resolve its financial risk to avoid thatcredit ratings were lowered caused by their increasing credit risk. Thus, the key pointfor enterprise groups to control the credit risk effectively is to manage their ownfinancial well, which means to prevent the occurrence of credit risk through theevaluation and prediction of their own financial situation at any time. Not onlymeasures of financial distress forecasting are discussed in this paper, but also a creditrisk assessment measure is constructed with both financial and non-financial factorsbeing considered, which makes this study has important theoretical and practical value.