The Empirical Study On The Asset Quality Evaluation And The Relationship With Enterprise Performance Of Chineselisted Companies

Asset is the survival foundation of an enterprise. It is confirmed that asset is aprerequisite for an enterprise to make profits. Asset quality refers to thecomprehensive effect of an enterprise’s business operation and management, whichreflects the “sound development” of an enterprise, in other words, whether theenterprise develop in a healthy way. The explosion of financial crisis lays greatemphasis on the importance of good asset quality for enterprise’s operation anddevelopment. Based on analyzing the occurrence and consequences of financial crisis,economists find that assets which are regarded as the lifeline of an enterprise’ssurvival and developmentdetermine the enterprise’s present operation andfuturedevelopmentto a great extent. Thus, it is essential for enterprise managers to beaware of the following issues:How to distinguish the superiority of asset quality formits inferiority?What are the features of the asset quality?How is the asset condition ofthe current listed companies in China?How does an enterprise’s asset qualityinfluence its operating performance?How should an enterprise manage its assetquality?How do investors distinguish the enterprise’s actual performance from itsdevelopment potential?The author of this thesis make an attempt to find answers to the above questions,hoping this research will be of some help to the improvement of asset quality ownedby the domestic listed companies. Specifically, this thesis focuses on the relationbetween enterprise asset quality evaluation and enterprise operating performance. Byanalyzing the general situation of the asset quality as well as the trade trend possessedby the listed companies in our country, the author first point out several problems thatexist in the asset quality management in Chinese listed companies; and thenanalyze the features of the asset quality and propose its substantive and qualitycharacteristics; and then construct comprehensive quality evaluation system bydesigning commonality index and applicability index with consideration of theindustry background difference; finally make empirical evaluation analyses on theChinese listed companies’ asset quality. Based onthe stakeholder theory,the authorevaluate the enterprise’ operating performance in terms of shareholder, creditor,employees and government, and then analyze the relation between an enterprise’sasset quality andits operating performance by establishing the linear regression model.In addition, the influence mechanisms of asset quality to enterprise’s operatingperformance are empirically tested.Around this problem, the logical orders of this paper are arranged as follows:The first part is an introduction; this part lists the research questions, defines thekey concepts, shows the significance and illustrates the logical structure.The second part is literature review; this part retrospectively reviewsthe relevantresearch at home and abroad on the assets quality research and enterprise performancestudy, and makes a brief comment.The third part is the status analysis of the listed companies’ asset quality;this partthrough the analysis of the present situation of the development of the listed company,and the present situation of overall assets quality and industry assets quality, pointsout the problems of the assets quality management.The fourth part is constructing the quality of the assets evaluation index; this partthrough theoretical analysis clearly defines characteristics of assets quality, andcombining with the industry factor, constructs the assets quality evaluation systemwith the general assets quality index and applicative index combined.The fifth part is the empirical research on assets quality evaluation of the listedcompanies; this part selects A shares listed companies as sample data, using entropymethod in the sample company assets quality evaluation analysis, and rank the samplecompanies, thatmakes the foundation for follow-up study.The sixth part is the empirical analysis on the relationship between asset qualityand enterprise performance; by constructing linear regression model and the modelcorrection, to analyze the relation between an enterprise’s asset quality and itsoperating performance, according to the empirical results put forward thecorresponding countermeasures.The seventh part is conclusion; this part summarizes main ideas of the whole paper, points out the limitations and future research directions.The data results and analyses concerning with the present situation of thedomestic listed companies’ asset quality indicate that: as a whole,(1) the listedcompanies’ asset scale enlarges steadily year after year;(2) the asset-liability ratioranks medium without much change and has no exorbitant debt risk, thus it canbasically keep the stability of the whole structure;(3) a great change has been foundon the asset profits and accounts receivable turnover ratio, which may be due to thethreat caused by the surrounding economic circumstances. The exorbitant change ofthe accounts receivable turnover ratio may have certain impact on those companiespossessing a weak ability to bear risk, which jeopardize the normal business operating.Seen from the industry situation, greater differences are found to exist amongdifferent industries in terms of enterprise size, asset profits, asset turnover as well asasset insurance, which indicate that the asset quality is influenced obviously byindustry elements.This thesis adopts an entropy method by constructing the Indicator System ofComprehensive Evaluation for Asset Quality to evaluate the asset quality owned bythe A-Share companies to be listed in China during2007to2010, the results of whichshow:(1) the listed companies in our country in general have a low level of the assetquality and significant difference in the quality of assets exists among differentcompanies, besides the companies with high quality level are rare, most companiesrank the average level, resulting in the low level of the asset quality as a whole.(2)greater gap exists between the standard value and the three assets quality featuresincluding the effectiveness, value-added ability and profitability, which indicate thatthere is an urgent need for listed companies to improve theses three qualities features,besides, the exchange currencies ratio and structure of the asset need to be improved,in contrast, the riskiness and insurance of assets are relatively good;(3) Seen form theindustry situation, the asset quality possessed by different companies is in animbalanced development, what’s more, the levels of the asset quality owned bydifferent companies vary a lot and the whole asset managements are relativelyinefficient, which greatly influence the enterprises’ business operating anddevelopment.This paper attempts to investigate the relationship between the asset quality andenterprise performance in terms of stakeholders, in which the author develops themeasurable indicators for business performance and use the Regression analysismodel to analyze the empirical research data. The research results show that the asset quality is positively correlated with the net assets income ratio, interest charges ratiosalary and wage growth rate, as well as tax growth rate. It means that the asset qualityhas a positive effect on the enterprises’ economic returns, the rights and interests ofstockholders, creditors and employees, and the revenues of governments. Specificallyspeaking:(1) the higher quality of enterprise assets are, the better economic profits aregained by the enterprise, while at the same time, the shareholders’ rights and interestsare guaranteed to a greater degree;(2) the higher quality of enterprise assets are, thegreater debt paying ability of the enterprise will be, so will the protection degree ofthe creditors’ rights and interests;(3) the higher quality of enterprise assets and thehigher the growth of staff wage is lead to higher guarantee of the employee rights andinterests;(4) the higher quality of enterprise assets and the higher amount of tax paidby enterprise lead to the greater protection degree of government’s revenue.Based on the empirical research results, some tentative suggestions are given:(1) It is essential to strengthen the state’s macro-control and regulatory capability,promote the domestic industrial structure readjustment, establish and perfect theindustry development planning and supervision mechanism, check up the idle asset,avoid overlapping construct and poor asset quality, reduce resources wasting as wellas improve the asset-utilization ratios.(2) It is necessary to set up quality management concept, improve enterpriseasset management efficiency, reduce toxic assets, optimize the assets structure,strengthen enterprises’ innovative ability and improve the scientific odds ofinvestment decision-making. Besides, to increase the asset utilization efficiency andestablish the corresponding asset quality management systems and supervisionmechanism, measures should be taken to equitably distribute available recoursesaccording to the Enterprise Strategy, avoid inefficient or excessive investments,increase enterprises’ risk resistance capacity and improve the assent managementefficiency.(3) Much attention should be paid to the improvement of the asset qualityincluding the actual asset scale, the asset structure, debt-to-assets ratio, profitability ofassets, etc. What’s more, it is important to clearly identify actual condition of theenterprise by comparing the enterprise situation and industry status, which can giveinsights for investors to make capital investment decisions.