Chinese Listed Companies' Financial Failure Of The Empirical Study Of The Early Warning Model

At present, among the listed corporations of China, because the mechanism ofexamination and approval is not perfect, there are many corporations which have theprobabilities of financial failure. It is very important to build a good forewarningmodel to scan these corporations.In this article, financial failure is defined as ST with special financial state. 97 STfirms and 97 N-ST firms of Shanghai and Shenzhen stock market from 1998 to 2002are selected as a sample. The research period is 5 years before ST. 11 financial ratiosare included. Throughout three methods as profile analysis, single-ratio analysis andmulti-ratio analysis, a model was finally set up:y=0.1270+0.6281X1 +0.3602X3+0.1934X5-0.4380X6+0.0952X 11.In the model, y is the probability of financial failure, X1 is ratio of net profit to networth, X3 is ratio of net profit to sales, X5 is ratio of liability to asset, X6 is ratio ofcurrent asset to current liability, X11 is asset turnover.It is concluded that the model can predict the listed companies that will be specialtreated based on the financial data effectively. The predictive capability is 89.18%,which is a very ideal result.