A Study On Financial Distress Prediction Of Bio-Pharmaceutical Industry In China Based On Listed Companies

The prediction of financial distress has always been a hot research topic. An effective financial distress prediction mechanism can protect enterprises from financial crisis. Viewing domestic and foreign relevant research, we found that previous research was based on universal applicability disregarding the differences between industries. Establishing corresponding prediction mechanisms for various sectors has been a hot spot in the financial distress prediction research.In the 21st century, Bio-pharmaceutical industry comes to the golden age of its development with the number of biotechnology companies growing rapidly. As an intellect-intensive, high technical and multidisciplinary integrated sunrise industry, Biopharmaceutical industry, with both high-risk and high-returns, are facing high barriers to entry and strong monopoly. Though foreign bio-pharmaceutical companies face greater risks of R & D, once their products are developed successfully and put into production, huge monopoly profits are available for its technical superiority as well as strict entry -barriers to and high monopoly.Compared to those in developed countries like European and American, bio-pharmaceutical industries in China, are lack in R & D funding and weak in R & D ability, most of their pharmaceutical technics and patents come directly from abroad, because of inadequate intellectual property laws, investment concepts and bad management, etc, the innovation and development of China's bio-pharmaceutical companies are restricted for a certain degree. In China, the financial crisis of pharmaceutical industry often happens during the sales stage and the phase of R & D. Weak R&D foundation of China's pharmaceutical industry results in low entry barriers, severe redundant construction, highly cost of sales and fierce competition. Once the market goes wrong, enterprises fall into financial difficulties easily. Therefore, it is significant to predict the financial distress to avoid the loss both for investors, investment institutions and managers in our country.This paper chooses financial distress prediction of China's bio-pharmaceutical industry as the topic, with analysis of the characteristics of China's bio-pharmaceutical industry, starts with the establishment of financial distress prediction indicator system fit for industry-specific features of China's bio-pharmaceutical industry. And then analyzes the signs of financial distress with expectation of establishing a more specific financial distress prediction mechanism with reasonable alert prediction Index for China's bio-pharmaceutical industry.This paper is divided into five chapters. Each chapter briefly describes contents as follow:ChapterⅠ: IntroductionThis chapter describes the background and significance of this study. Bio-pharmaceutical industry in our country has its own characteristics. It is meaningful to research into financial distress prediction system in this field.ChapterⅡ: Literature ReviewThis chapter summarizes the current domestic and international researches on the status of financial distress prediction. Besides, it analyzes the current situation of financial distress in various sub - sectors, especially in biological pharmaceutical industry in our country.Chapter III:The establishment of financial distress prediction indicator system for the bio-pharmaceutical industry This chapter analyzes the characteristics of bio-pharmaceutical industry in China after compared with the mature ones in the western countries. Based on these characteristics, a financial distress indicators system is proposed in this paper.ChapterⅣ: The empirical study of financial distress prediction for China's bio-pharmaceutical industryThis chapter analyses the financial signs before financial distress in the bio-pharmaceutical industry by means of descriptive statistics. The financial indicators and unfinacial indicators of ST (* ST) and non-ST (* ST) companies in the bio-pharmaceutical industry are compared and the obtained data are analysed using independent samples t-test.ChapterⅤ: Summary This chapter summarizes all the contents described in this paper and analyzes the limitation of this study.Compared with previous studies, this research has different scope and methods. The article focuses on the financial distress prediction in the bio-pharmaceutical industry. Through combined qualitative and quantitative methods, it enriched the studies of financial distress prediction in sub-industry. Moreover, the analysis of control cases provides strong persuasion.However, due to the lack of data and limited research abilities of the authors, this research still has some shortcomings in sample selection and handling, as well as research width and depth. Meanwhile the study and analyses on non-financial indicators and some new factors are still insufficient. Thus further studies are required and will be very meaningful.