| Corporate financial distress has always been the important subject in the study of corporate finance. Many domestic and foreign scholars have done a great deal of research in this field. At present the researches in the financial distress are mostly concentrated on setting up models to predict corporate financial distress based on the financial variables. But the research on the potential reason why the company falls into the financial distress is actually rare.From Fitzpartrick's single variable model (1932) to Artificial Neural Network introduced into the financial distress prediction, the scholars have already made very great progress in the research of the financial distress. But there is still insufficient in this field. We think the insufficiency mainly includes several aspects. The first, the theoretical research on the financial distress is relatively rare and the theoretical research is separated from empirical research. The second, most researches are based on financial accounting statement data and neglecting a large amount of the information outside the accounting statement. The third, we consider adopting financial variables to predict financial distress to be just a kind of relative analysis based on samples. The forth, the financial data are ex post in the nature. They can't reflect company's operation in time. The fifth, the financial variables in the models set up by different scholars are different, which make model-user confused.Recently some scholars have already noticed the insufficiency of the financial distress model set up in the past. Based on the theory of corporate governance, they have done a lot of researches. Tsun- Siou Lee and Yin-Hua Yeh (2002) examined the relation between the expropriation that the controlling shareholders conduct to the companies and to the minority shareholders and corporate financial distress. Fathi Elloumi, Jean-PierreGueyie (2001) and Chen Chao etc. (2002) have investigated the relation of the characteristics of board of directors and financial distress. Xiu-hua Jiang, Zheng Sun (2001) introduced the variable of ownership concentration as corporate governance proxy variable into their study, by which they examined the relation between weakened corporate governance and financial distress.In our paper, based on prior studies we make a further research on the relation of corporate governance and financial distress.From six aspects including ownership structure, agency cost, board of directors, guarantees to other companies, related party transaction and auditing reports of accounting statement, we set up nine hypothesizes and make detailed theoretical analysis to every hypothesis. The nine hypothesizes that we set up are that:: The proportion of shares that the state holds is positively associated with the probability of corporate financial distress.: Agency cost is positively associated with the probability of corporate financial distress.: The scale of the board of directors is positively associated with the probability of corporate financial distress.: The duality of chairman and CEO is positively associated with the probability of corporate financial distress.: The proportion of shares that directors, supervisors and managers hold is negatively associated with the probability of corporate financial distress.: The amount of guarantees to other companies is positively associated with the probability of corporate financial distress.: The amount of related party transaction is positively associated with the probability of corporate financial distress.: The amount of other account due is positively associated with the probability of corporate financial distress.: The certified accountant's appraisal to the accounting statement is negatively associated with the probability of corporate financial distress.We use the data of publicly listed companies in China to examine hypothesizes we set up. Financial companies that we chose are the companies that were specially treated in 2000-2002 years because their financial situations are unusual.
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