Research On The Financial Risks Considering The Corporate Governance Structure

Financial risk management has been an important issue in the field of financial management. The survival and development of enterprises has close correlation with financial risk level and there are a lot of enterprises bankrupt because of financial risk all over the world. The reasons behind the tragedy are varied:the influence of external environment is likely, also may be internal decision-making errors. In recent years, the financial risk caused by imperfect corporate governance structure has attracted people's attention. In 2008, there was an earthquake in the world economy, one of which reasons is the failure of internal governance. No doubt, the failure of corporate governance must enlarge the financial risk so that how to construct an efficient and reasonable corporate governance structure to improve enterprise financial situation and reduce the financial risk becomes a problem that people have to think about. With the development of modern corporate governance system, it becomes feasible that research on the mechanism between corporate governance and financial risk, then we can design reasonable corporation governance structure to curb the financial risk. From now on, there is a new way to predict and prevent the financial risk, which is no longer just depends on the financial data and financial indicators, but introduces corporate governance factors. The company's stakeholders must see the significance that governance structure for weakening the financial risk and emphasize on establishing a reasonable corporate governance structure to enhance the financial strength.When foreign scholars researched on this issue, they always contacted the development of theory and sometimes the research in Practical field produced the new theory. The time started to research this proposition in our country is later than western and in early study scholars mainly selected a single variable in corporate governance structure to do the research, such as equity structure, the board of directors, etc. In addition, there were some limitations in empirical research method. For the study in this field, the timeliness and regional are very important.In order to study the influence mechanism that the corporate governance structure how to affect on the financial risk from comprehensive perspective, this paper based on principal-agent theory and delve theory and selected eight factors from equity structure, the board of directors features and executives incentive, then analyzed how they influent the financial risk with the purpose of controlling and improving the company's financial situation.In empirical research, I took 2007-2009 Shanghai and Shenzhen A-share data (except financial industry) and measured the level of financial risk through Z model, then discussed the influence of corporate governance structure to financial risk using the eight factors as variables. The results of the study show that, at present the corporate governance level and financial risk level should be improved largely and the equity concentration, the balance extent of ownerships, the controlling shareholders properties, the duality of positions between the chairman and the general manager, executive shareholding and executive salary actually have effects on the financial risk, so that we can reduce it through those factors.This paper's research path is that based on the present research results worldwide, divided the corporate governance structure into equity structure, the board of director features and executives incentive, selected representative variables from them and discussed their effects on the financial risk.The five chapters of this paper are as follows:Chapter One:Introduction. This chapter take the incomplete corporate governance structure caused financial crisis as background and discuss the significance of this paper. Its research path is that based on the present research results worldwide, divided the corporate governance structure into equity structure, the board of director features and executives incentive, selected representative variables from them and discussed their effects on the financial risk. The main research methods used in this paper include:combining normative research and empirical research, combining qualitative research and quantitative research, comparative analysis, and literature collection.Chapter Two:Literature Review. This chapter reviewed the research achievements about how corporate governance affects financial risk. When foreign scholars researched on this issue, they always contacted the development of theory and sometimes the research in Practical field produced the new theory. The time started to research this proposition in our country is later than western and in early study scholars mainly selected a single variable in corporate governance structure to do the research, such as equity structure, the board of directors, etc. In addition, there were some limitations in empirical research method. For the study in this field, the timeliness and regional are very important.Chapter Three:The theoretical analysis about how corporate governance structure affects financial risk. In this chapter, firstly summarized the scholars how to explain "corporate governance structure" and "financial risk" and defined this two important concepts used in paper on the basis of them; then described some related basic theory and analyzed the relationship between the theory and the issue studied by the paper; lastly from the eight major factors discussed the influencing mechanism of them to financial risk and put forward corresponding research hypotheses.Chapter Four:The empirical analysis about how corporate governance structure affects financial risk. This chapter was based on the above theoretical analysis, described the situation of corporate governance and the level of financial risk through empirical data and inspected the research assumptions. The empirical analysis took 2007-2009 Shanghai and Shenzhen A-share data (except financial industry) as the samples, built multivariate linear regression model, used descriptive statistics analysis and regression analysis and selected EVIEWS to do this research. The test results provided a strong basis for reducing the financial risk through constructing a rational corporate governance structure.Chapter Five:Conclusions and policy recommendations. The results of empirical research showed that at present the corporate governance level and financial risk level should be improved largely and nearly a half of the enterprise had the potentially financial risk. the equity concentration, the balance extent of ownerships, the controlling shareholders properties, the duality of positions between the chairman and the general manager, executive shareholding and executive salary actually have effects on the financial risk, but the size of the board and the proportion of the independent directors have not played their roles fully. This paper has given some suggestions for reducing the financial risk from the views of corporate governance structure.The main contributions of this paper are as follows:First:Enrich the literature of this field. Most of the existing researches on financial risk are focus on how to recognize, measure and predict the financial risk. Their research method is mostly combining qualitative analysis and quantitative analysis using the financial data and financial rate. There are a few papers analyzing the influence mechanism of corporate governance structure to financial risk specifically, even if existing some researches in this field, scholars usually choose a single aspect as the breakthrough point. This paper chooses three aspects (equity structure, the board of directors and executives incentive) to do the research, which research perspective is relatively comprehensive.Second:Reveal the listed companies'governance situation and financial risk level in the recent three years. Corporate governance structure and financial risk level are not static and it will change with the development of the enterprise itself and the mature of external market environment. After the financial crisis, the listed companies'governance situation and financial risk level in our country must enter a new stage and this paper points their characteristics in this new stage.Third:Give the state-owned shares a new recognition. In the existing researches, when analyzing the controlling shareholders properties, most scholars think that the financial risk in State-holding enterprise must be lower than non-state-owned holding enterprise. This paper reiterates the view put forward by some scholars that state-owned shares have two-side utilities and which side is stronger depends on the role of the government.The main limitations of this paper are as follows:First:Limitations of corporate governance structure variables. This paper just chose internal corporate governance variables because the external corporate governance is hard to measure. For the internal corporate governance variables, it involved a lot of different factors, but I just selected eight typical factors.Second:Limitations in measuring the financial risk level. This paper used Z model to measure the financial risk which was the choice based on the rationality and operability. The limitation of Z model itself might affect the accuracy of measuring financial risk.