The Study On The Positive Effect Of Financial Distress In Chinese Listed Companies

In China, the study on the relationship between financial distress and the performance of the listed companies has focused on the cost or benefit brought in by financial distress by empirical researches. The study about the cost of financial distress has achieved a lot of fruitful results, but the benefits of financial distress haven't been studied systematically. In China, the scholars often used the concept of positive effects or positive effects. In this paper, the concept of the costs and benefits of financial distress have been introduced, with the positive effects to be studied defined.In this paper, the characteristics of China's listed companies have been introduced comprehensively. In terms of equity structure, it is more complex; the proportion of state-owned shares and legal person shares is too large and can not circulate; the equity is focused on fewer persons; therefore, the public shares can not play a role in governance. In terms of liabilities, the bank as one of the main creditor, is virtually in charge of the government, therefore, the management of this part of liabilities is weaker. In terms of the management of the listed companies, the corporate governance mechanism is still not perfect. Neither is the mechanism of bankruptcy. These characteristics determine that facing financial difficulties, the listed companies in China are different from the Western countries in choosing the direction of developmentThe article analyzes the positive effects of financial distress from two points. In chapter 4, theoretical analysis is made:In macro point of view, financial difficulties are likely to promote changes of the organization, management and structure of the listed companies so that the resources of enterprises flow to where there are more values, thereby causing the reasonable transfer of social wealth. In micro point of view, companies facing financial crisis will be supported by the government; because of the shortage of free cash, the agent costs as well as their operating costs will be reduced; after financial distress, the asset quality of listed companies will always be improved; enterprise managers under the pressure of financial difficulties will make more active efforts, thus the structure of corporate governance can be improved, and the companies could restructure enterprises strategies; even in the later stage of financial distress, the scarcity of shell resource will also attract other companies in the market to take over the endangered companies. Chapter 5 illustrate that measures which the enterprises used can make the enterprises gain more profits by summing up the actual cases, including the measures themselves, as well as the related benefits with the implementation of the measures, such as the improvement of corporate governance, asset liquidity and the improvement of profitability, etc.