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An Empirical Study On Prediction Of Financial Distress For Companies In China's Stock Market

Posted on:2002-07-10Degree:MasterType:Thesis
Country:ChinaCandidate:X Y LuFull Text:PDF
GTID:2156360062975241Subject:Business management
Abstract/Summary:PDF Full Text Request
Financial distress is also called financial crisis. Financial distress happens if a firm's "toing concern"meets difficulties. It is significant for us to study financial distress since those who are corporate managers or creditors or stockholders can profit from financial distress study. This paper focuses on the financial distress problems in China, and an empirical study is conducted to predict the financial distress for companies in China's stock market. We design our study based on a research review from the previous domestic and abroad study on financial distress. We investigate 70 stocks which are special treatment (ST) owing to negative profit for 2 successive years or great loss in 1 year or CPA's special advice, and the other 70 stocks without ST from China's stock market. Twenty-one financial ratios of three to five financial years are calculated for our investigation. We select four of twenty-one financial ratios to conduct a profile analysis and univariate analysis, which describe corporate profitability, long- or short-term solvency and operating efficiency. We use LPM's stepwise regression and our work experience to choose six variables and conduct a multivariate analysis. We find they work well to predict financial distress four years before financial distress happens. We also find Logit Model is the best analytic method in predicting financial distress when using the same information collection. Our study includes four chapters as follows. We discuss the concept of financial distress and its study's significance in chapter one, and also review the important literature on financial distress from domestic and abroad papers. We then discuss the main problems in this study. We design our study in chapter two. We introduce profile analysis, univariate analysis, and multivariate analysis applied to studying financial distress, then we compare LPM, Fisher discriminant analysis and Logit Model in this chapter. In addition, we describe our method and procedure of selecting sample and data source. The results of the empirical study are described in chapter three. We select four of twenty-one financial ratios to do profile analysis and univariate analysis, which describe the ability of corporate profit, long- or short-term solvency and operating efficiency. Then, we use LPM's stepwise regression and our research experience to identify six variables and conduct a multivariate analysis. We find they work well to predict financial distress four years before financial distress happens. We also find Logit Model is the best analytic method in the prediction when using the same information collection. In chapter four, we summarize the results of the empirical study from chapter three. In addition, we suggest that the estimated Logit Model in this study is both efficient and effective in predicting financial distress for the companies in China's stock markets although some shortages still exist in the study.
Keywords/Search Tags:financial distress, financial ratio, discrimination analysis
PDF Full Text Request
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