Institutional Environment On The Company’s Financial Crisis

In recent years, with the rapid development of China’s market economic system reform and capital markets, competitive market economy provide enterprises with a broad arena of business on the one hand, on the other hand hidden numerous of rapids and shoals, the slightest mistake can be involved in the failure of the whirlpool. Especially after joining the WTO, in the face of the economic influence of globalization, the challenges of transnational corporations aggressively vied for the Chinese market, and the era of knowledge economy growing competitive pressures, the going concern assumption in the traditional financial theory is gradually loosened, and the enterprises increasingly faced the uncertainty, enterprises operating in crisis and even declared bankruptcy case was very common due to poor financial situation. China’s capital market is an emerging and incomplete markets and China’s capital market is rooted in the unique transition economies, the company’s stock price is difficult to reflect the company’s fundamentals. In this sense it is very necessary to investigate the situation of corporate financial crisis. Secondly, the characteristics of the transition economy result that in China’s capital market listed companies are mainly large and medium-sized state-owned companies directly or indirectly controlled by the government. Government often intervenes in the allocation of market resources, and the level of legislation on the capital market is also relatively low and the process of marketing in the different regions is very different. These characteristics are the main aspects that China’s capital market is different from Western capital markets. When analyzing the financial risks of the Chinese companies we should take account of the special environment of China’s listed companies. However, when researching into the previous literatures this paper discovers that the inspection of corporate financial crisis is mainly concentrated on the listed companies’ financial crisis early-warning model whose main content is to examine information timeliness and discrimination success rate of the specific corporate internal financial indicators in predicting the corporate financial crisis. It not only results that such studies are generally limited to the ST companies, but also ignores the external environment, such as the property of listed companies, the impact of government action, the legislation level and the regional market process and other factors influencing on the corporate financial crisis.Through analyzing the governance environment of the sample companies, this paper describes the differences in governance mechanisms between financial crisis companies and normal companies, and deeply inspects the relationship between institution environment and financial crisis of listed companies by using a variety of methods. The goal of comparison in corporate institutional environment is to find the method arranging the structure of governance institution so that companies can avoid financial crisis. Relevant researches can provide listed companies with strong guidance and practical significance, and guide companies to build the corporate governance structure and design corporation institution, and lead companies to develop in the efficient, healthy and reasonable direction. Therefore, this paper studies the relationship between the institutional environment differences with the corporate financial crisis. It not only enriches the existing theory of corporation governance, but also deeps view of the root causes of corporation financial risk by providing a theoretical basis, and has theoretical and practical significance in promoting the optimization of corporation governance structure and reducing corporate risk.Based on the above analysis, learning from more mature classification methods, integrating economics, value management and econometric into multi-disciplinary, choosing971listed companies of China’s Shenzhen and Shanghai2003-2007971as study samples, and eliminating the finance, integrated industry, and missing data samples, this paper empirically studies the relationship between the corporate institution environment and the corporate financial crisis with SPSS18.0statistical software model. This paper builds the corporate institution environment characteristic indices by taking the Chinese marketing indexes drawn by Fan Gang and Wang Xiaolu (2007). The marketing indexes consist of an overall market index and five sub indexes. The five sub indexes consist of the relationship between government and market, non-state economic development, the degree of development of product markets, the degree of development of factor markets and market intermediaries, and the environment of legal institution. This paper chooses the overall index and the first and five sub indexes to measure the index of marketing process, the index of degree of government intervention and the index of legal level. The final study finds that there is significant correlation relationship between the corporate institution environment and the corporate financial crisis. It means that other things being equal, the faster the marketing process is, the smaller the possibility of financial crisis is; other things being equal, the lower the degree of government intervention is, the smaller the possibility of financial crisis is; other things being equal, the higher legal level is, the smaller the possibility of financial crisis is.