Early-warning Of Financial Distress Include Corporate Governance Variables

In recent years, financial distress has become an important issue in the economic field. The financial status affects the corporation's running directly and is related to the survival and development of the corporation. So the study on financial distress, especially on the early-warning of financial distress appears to be very important.Most of prior studies have been concerned with the establishment of early-warning models of financial distress based on only financial ratios. This paper makes use of the financial statements of Chinese listed companies and builds a successful early-warning model of financial distress with Logistic method. Based on financial factors, this study adds the corporate governance variables into the model.Firstly, this paper introduces the background and significance of the study, than it discusses the concept of financial distress, and reviews the important literature on financial distress from domestic and abroad papers. By the way, it discusses the main contents and innovations in this study. Secondly, the paper introduces the concept of corporate governance, and analyzes the relationships between corporate governance and financial distress. Then the paper puts detailed description on research design, which consists of selecting samples, choosing variables and establishing the early-warning model. The fourth part is the empirical study on the early-warning of financial distress. Statistically disposing corporate financial information and governance ingredient in virtue of factor analysis and paired-sample test respectively, the paper develops and empirically tests two logistic regression models on the early-warning of financial distress in Chinese listed companies, i.e. model which just uses financial variables and model which includes corporate governance variables. The last section makes out main conclusions of this study, summarizes the shortcomings of our study and suggests the future study.The empirical results indicate that the model including corporate governance variables dominates the other one. Thereby corporate governance can redound to predict financial distress.