Study On Financial Distress Of Listed Companies

It is a gradual process for a company getting into financial distress, so it must have some signs and thus could be forecasted. Forecasting corporate financial distress accurately makes much sense. For example, the exact forecast could increase interests of investors and debtors, could protect managers from financial crisis, and could help government to monitor listed company's quality and securities market's risk. Therefore, there are a large amount of demands for the research of company's financial distress, and it is the demand that impulses this field of research to developing limitlessly. By reviewing the research in this field, we can find that mainly, three types of factors, financial factors, governance structures and macroeconomic factors, would influence corporate financial distress. Considering that few domestic research include governance factors into this field, and furthermore, no macroeconomic factors have been included, this research, in view of our listed companies'characters, compares the different influence of governance factors and macroeconomic ones, and especially, the controlling shareholder's behavior of tunneling aroused by the weak governance structure is this paper's focus. Firstly, based on the prior researches of financial distress, combined with characters of Chinese listed companies, we analyze the influence of governance structure and macroeconomic factors, and then Put forward nine hypotheses, which are H₁: The relation between the proportion of shares of the first holder and the probability of corporate financial distress takes on conversed "N ". H₂: The proportion of shares held by the second to the tenth shareholders is negatively associated with the probability of corporate financial distress. H₃: The character of shareholders is positively associated with the probability of corporate financial distress. H₄: The size of the board of directors is positively associated with the probability of corporate financial distress. H₅: The duality of chairman or member and CEO is positively associated with the Probability of corporate financial distress. H₆: The proportion of directors holding shares is negatively associated with the probability of corporate financial distress. H₇: The expropriation by the controlling shareholders is positively associated with the probability of corporate financial distress. H₈: The agency cost is positively associated with the probability of corporate financial distress. H 9: The growth of domestic product is associated with the probability of corporate financial distress. H 10: The money policy is negatively with the probability of corporate of financial distress. Secondly, in empirical research, we used data from listed companies'annual report to test our hypothesis. To begin with, we choose samples according to the definition of financial distress, and the definition is that the current ratio has been less than one for at least two years. Compared with the criterion-ST, which is used in prior research on corporate financial distress, which we have adopted, could describe the essence of corporate financial distress. Then, based on the annual report of listed companies, we choose sample companies and matched companies, and then use Logistic model, which has been proved more proper than others in forecasting corporate financial distress, to test the hypothesis stated above. We conclude that governance factors including the proportion of shares of the first holder, the character of shareholders, size of the board of directors, CEO duality, the proportion of directors holding shares, the expropriation by the controlling shareholders, the agency cost influence the probability of corporate financial distress, and then H 1 , H 2 , H 3 , H 4 , H 5 , H 6 , H 7 ,H 8 have been proved consistent with our expectation. At the same time, by analyzing the influence of macroeconomic factors, we conclude that they are the notable factors, and then H 9 ,H 10 have been proved. But the degree of their influence depends on the governance structure of listed companies. In conclusion, we argue that the weak governance structure is the basic reason that makes for corporate financial distress, and especially, the expropriation by the controlling shareholders is more serious in China, and macroeconomic factors are also notable, but the degree of their influence depends on the governance structure of listed companies. Thirdly, according to theory analysis and empirical results, combined with the characters of our listed companies, we bring forward some suggestion. In the first place, sell off state shares in listed companies. The concentration of shareholding does not necessarily result in the poor performance of listed company, for the impact of the degree of concentration is both positive and negative. The main disadvantage is that state-owned shareholders have their own agency cost. Thus, they cannot take on their responsibility as best as they can and this kind of ownership structure turns into the direct reason for the bad performance of our listed company. In the next place, turn non-negotiable...