Analysis Of Listed Bankruptcy Risk And Early Warning Models

Since the establishment of Shanghai Stock Exchange and Shenzhen Stock Exchange, there has been no real bankruptcy case of Public Listed Company, and all those companies which have stopped bankruptcy procedure choose to carry out bankruptcy reorganization. According to The New Bankruptcy Law(2007), as long as the company, including business entities and Public Listed Companies, can't pay the debts on time and has more liabilities than assets or is lack of liquidity solvency, the company can file for bankruptcy. However there is no Public Listed Company ending up with bankruptcy, as a result, the investors don't pay enough attention on the bankruptcy risks of Public Listed Company. Therefore, it does makes much sense that we should analyze the risks of Public Listed Company and build the proper models which can benefit both companies and investors.First, the paper analyzes the current situation of bankruptcy of Public Listed Companies, in order to making the investors get a clear and thorough grasp of the bankruptcy of Public Listed Companies. Secondly, the paper finds out the reason why there is no withdrawing mechanism in stock markets in China, there is seldom company filing for bankruptcy because of the existence of "Share Value" and the not yet perfect legal system. This kind of No-Exit Market makes the bankrupting companies have high risks of bankruptcy and at the same time have immense investment value. The paper also points out that, in terms of qusia-bankruptcy companies, there is weak relationship between market value and enterprise value. and the valuable which the bankruptcy reorganization expectation produces is the main attraction the investors focus on. No matter we are going to purchase the valuable or to escape from the bankruptcy risks, we must build Early Warning Models to analyze the bankruptcy of Public Listed Company. At last, based on the relative financial indicators,the paper chooses Principal Component Analysis (PCA) as research methods, introduces five principal factors and build the Early Warning Models of Public Listed Companies by using Logistic Analysis. The result show that the prediction accuracy is up to 90%, which means the model, is good enough to early-warning the bankruptcy risks and can give investors the scientific evidences of investment decision making.