Study On The Financial Distress Early-warning Of Listed Companies In The Northeast-based On The Corporate Governance

Under the revitalization of the old industrial in Northeast China, the listed companies in the northeastern region were studied by empirical research. On the basis of the related research at home and on abroad, corporate governance variables will be introduced into the financial forecast model. On the initial stage of study, academia tried to have a breakthrough on method, from the multiple linear discriminant analysis to a variety of non-parametric model represented by the neural network model, the relevant research results have been emerging. However, the accuracy of recent development of prediction method does not be improved, because of the specific operation was too complex, so this paper is not just confined to the use of accounting or financial indicators to build models, but the use of corporate governance indicators to build model. I believe that good corporate governance is the function of an healthy enterprise. This paper also attempts to explore the deep-seated reasons of financial distress, and the relationship between corporate governance and financial distress. With a view to granting the listed companies of northeastern enterprise testing their internal operating, as well as other stakeholders, investors to monitor their internal management.In the above context, this paper distinguish the definition from domestic and foreign scholars on financial distress. According to China's specific conditions, a listed company which attributable to special treatment as part of the signs in financial difficulties. Followed by the detail of the domestic and international study stage and research methods, and reviewed the classic literature. At the same time, the paper introduces the literature which also regard the weakening corporate governance as the reason of financial distress. This article holds that the financial difficulty model contains corporate governance information is very necessary. Next, the text used a whole chapter on the theory of corporate governance, and it focus on the relationship between corporate governance and financial distress. the corporate governance structure conclude the board structure, the board of Supervisors status, pay and incentive system, and shareholding structure, as well as the four aspects of the relationship with financial difficulties.In empirical research part, based on the theory of corporate governance, the paper give the expected assumptions on the relationship between the indicators and the financial distress, and 25 listed companies of the 1995-2006 in Shenzhen and Shanghai stock market, which have been ST by"abnormal financial situation", were chosen for the study sample. And 67 normal companies, which is the same size same period and one region, were chosen for matching samples. Selected indicators as predictor variables, which can reflect the overall financial position of the target, including 26 traditional financial ratios indicators and 16 corporate governance indicators.First of all the predictor variables are put into multicollinearity test, and then made a correlation analysis, which shows that the majority of variables are consistent with the assumptions and expectations, in addition to salary levels, the size of the board of supervisors. The results show that, the size of supervisor board and financial difficulties are positive correlation, that is, the greater the size of supervisor abroad, enterprises in financial difficulties are likely to be. This shows that the size of the supervisor board is not the most important, the key is that the supervisor board can effectively exercise their supervisory power. Particularly, in northeast region, there is no significant relationship between pay levels and the occurrence of the financial difficulties. It shows that the northeastern region of incentive pay system should be improved. The results from empirical research we can see that the system of independent directors have a significant impact on financial difficulties companies. The listed companies of northeastern region should pay attention to independent directors on role of the enterprise management, and should further improve the system of independent directors, and make them playing a effective role in the companies.Next, logistic regression model was used in this study to build financial distress predict model in form ST T-3 period, respectively, by traditional financial data, corporate governance and financial data and mixed data., and the accuracy rate is 75.8%, 75.8% and 82.4%. The predict model using mixed data shows the strongest predictive capability among three models, and has a better practice value.Entering the forecast model indicators included: the rate of assets and liabilities, the main business profit margins, the proportion of independent directors and major shareholder stake in the company. It is worth noting that the rate of assets and liabilities of independent directors and the scale of indicators have appeared in the previous model and these two indicators have a stronger predictive ability. The innovation of this paper: First, There was a number of theoretical results studying on financial distress predict, mainly that concentrate on the comparison of accuracy by the three traditional method. The results will be changed by the selection of models, the selection of indicators, and even the regions and industries will effect the results. The samples from the northeastern region were chosen in this study, that is relatively rare in the former empirical study, and we selected 26 financial targets and 16 indicators into the company forecast. Second, the introduction of corporate governance variables on the early warning financial distress predict model building is another innovation, most of the former literature used financial variables in the financial distress predict. This study tried to find the deeper causes of financial distress. Modern theory of enterprise management regard good corporate governance as the guarantee of health enterprise. Through the empirical studies of the northeastern region, the paper tried to find the relationship between corporate governance and financial distress.