Empirical Analysis And Research On Early Warning Of Securities Companies' Failure

During 2001 to first half of 2006, stock market droped into a sustained recession.Though the series of measures adopted by CSRC(China Securities Regulatory Commission) to mitigate the market risk had indeed stopped the industry from collapse, yet it brought much loss to stakeholders. This paper attempted to build financial failure forecast model about securities companies. Based on the theory and experience of corporate failure prediction models, this paper takes China securities companies as research sample and construct models.As a major issue of the financial sector, risk management includes risk identification, risk forecast and risk treatment. if we can discover the risk ahead and take some relevant measures, then the risk management cost will be lower. At the same time, failures of foreign securities companies (investment banks) which further evolved into a worldwide economic crisis also demonstrate that it is of great importance to predict their failures timely and effectively. Learning from foreign literarure and experience and taking Chinese securities companies as research sample, this paper defines securities company financial failure as bankruption or being adopted risk disposition measures by the securities regulatory sectors. This paper select 24 securities companies with financial failure and 24 securities companies with health financial as research sample, select and design a series of index variables and take advantage of the Discriminant Analysis, Logit method as well as Probit method separately to construct models. Finally this paper build an early warning model for securities companies with Logit method. This model includes four variables. They are the current assets/current liabilities reflecting short-run solvency, net capital/net assets reflecting the business risk, CC/BC reflecting changes of capital situation without new capital injection, the total net capital assets/net capital representing the extent of capital adequacy. These four variables reflecting different aspects of the securities company. Seen from the research results, domestic securities companies in failure share similar financial statements and keep different from healthy securities firms in the essential characteristics. Fortunately this paper can distinguish them by means of our model and the test results out of Jackknife techniques are somehow encouraging. Additionally, in the model this paper emphasize the liquidity as well as the extreme importance of net capital to healthy management, which coincides with the essence of the U.S. financial reform bill recently passed and thus reveals the practicality of this paper.