An Empirical Study On Influencing Factors For The Listed Companies Fall Into Financial Distress In China

The pressure and the risk of the external environment changes and the poor management of company will cause financial problems, make the enterprise encounter financial difficulties in the production process or into a financial crisis. A profound understanding and analyze the factors which will be influencing the company fall into some pretty deep financial trouble have a great significance. It will improve the quality of the company’s operation and management level, to protect the stakeholders from the losses, to promote the sound development of China’s market economy and capital markets and to maintain the economic and social stability.Through the compilation of relevant literature documentation and theoretical basis, this paper selected69ST listed companies of manufacturing in Shanghai and Shenzhen Stock Market which are all new ST cases annually during2006-2010.With the principles of more accurate and longer time span selects normal financial company as their paired sample.This paper illustrates the status quo of China’s listed companies in financial distress and analyzes the causes of financial difficulties, derives the financial and non-financial factors which make firm into financial pain. Last selected40indicator variables which can more scientific and reasonable reflect the two types influencing factors, creates a fully integrated index system that can be reflected the comprehensive management situation of the enterprise. K-S test result shows that the sample data with non-normal distribution, so it is an important reason for the paper does not use the t-test and other regression methods. By using the Mann-Whitney U significant test method to verify the differences of the financial difficulties and the normal financial company, the results show that most of the financial factors indicator variables have a significant impact on whether the company will fall into financial distress. In corporate governance of non-financial factors, the test results of the board size, two hats separation condition, the independent directors’proportion had no significant effect, while the rate of management fees on behalf of the agency costs have a certain influence on financial distress. In the equity structure, the practical significance of the ownership concentration, ownership property, ultimate control person type is not strong.The shareholding proportion of top managers and executives on behalf of the management incentive which verify that the incentive effects of financially distressed companies is less than the normal financial company. The associated transaction of two sets samples test is weak effect. By uses factor analysis method to extract six principal components from quantitative variables, and it also selected four qualitative variables with significant differences as the independent variables in the regression model, to obtain a better goodness of fit which showed from the regression results. The model joins non-financial factors variable have a higher accuracy to determine the financial distress, while the regression model coefficients verify the profitability, solvency, asset management efficiency, grow ability, clean audit opinion are all more better, business litigation and arbitration is more less, the company is less likely to run into financial difficulties.Finally, this paper make some empirical conclusions, and give the relevant recommendations to deal with financial difficulties. And also expect these factors to help companies analyze their own financial condition and governance level, find out the financial problems and abnormal management conditions more earlier, then adopt effective measures to avoid financial troubles and prevent the enterprises get loss.