| Enron accounting fraud scandal broke out in2001,Triggered a crisis of confidence in U.S. capital markets,stock market crash, had a serious impact on the U.S. economy, and spread to the world. From1997to2001, Enron false profit of600million U.S. dollars, many listed companies in China, there are also serious profit manipulation. Therefore, the reliability of the current accounting profits based theory of corporate finance research in a way that to be considered. Many scholars believe that the accrual-based financial ratios and financial ratios based on cash flow to provide a different analysis dimensions. Most studies support the cash flow theory, but also scholars of the theory questioned. This paper attempts to study two types of indicators based on the effectiveness of the financial early warning indicators of free cash flow and cash flow indicators.Foreign corporate crisis management and risk management are often subject to wide attention. Foreign macroeconomic warning continues to develop research and corporate crisis management theory from the1970s, and thus contribute to its early warning research. The financial crisis early warning system in China, both in theory and in practice are lagging behind. But with the exposure of a series of accounting scandals, the accounting information reliability and relevance of the voice of doubt is getting bigger and bigger, even those corresponding to the accrual accounting information in a negative light. Therefore, the cash flows become more and more people of all ages, while free cash flow to remove the renovation and reconstruction of the production equipment, management system upgrades, etc. for maintaining corporate survival and continued operation necessary expenditures and therefore are considered truly reflect thethe going concern assumption under the premise of the solvency. This paper attempts by comparing the utility of free cash flow in corporate finance in the crisis warning.An Empirical Study of Financial Distress in a foreign country, especially in countries with developed capital markets is a widespread concern in the subject. Financial Distress started in the1970s, the United States, from the Beaver single variable, with the development of the globalization of financial markets, Financial Distress enduring. To establish an effective corporate financial distress prediction model is of great significance:First of all, the financial crisis early warning is important to operators, and operators to accurately forecast the company’s financial crisis, you can take appropriate measures to correct problems in its management, to avoid the further deterioration of the company’s financial position, thereby reducing operational risks. Second, the financial crisis early warning is important for the owner, the owner of accurate forecasts of the company’s financial crisis, by replacing the operators or to remind operators to take appropriate measures to avoid entering bankruptcy liquidation or merger and acquisition situation. Again, the financial crisis early warning is important to investors, and investors to accurately forecast the company’s financial crisis, can help investors identify the company’s quality by adjusting the portfolio to reduce investment risk, thus improving return on investment. Finally, the financial crisis early warning significance of the regulators, the securities regulatory authorities through the establishment of a listed company’s financial crisis early warning indicator system, a comprehensive evaluation of the operating results of listed companies, in order to establish appropriate risk warning system of guiding significance to the regulatory workhelp investors make the right judgment to make the healthy development of securities market.Evolved from the favorable circumstances in the financial situation of enterprises, the process of adversity, we are often from outside the enterprise characteristics (for example, reliance on loans too much, the transaction log is not normal, it fails to draw up and submit financial statements, related party transactions frequent management changesfrequent and selling the stock) can also be analyzed in terms of financial characteristics of early aware of the crisis. Of this paper is to perceive the crisis through the financial characteristics, the purpose is in the stage of the incubation period of the corporate financial crisis through a variety of financial indicators to determine whether the enterprise into a harbinger of the financial crisis, in order to take the necessary measures to avoid financial crisis into the outbreak. The paper is structured as follows: The first part, Introduction. In this paper, the background, purpose and practical significance of the continuous development of the current financial scandals and the capital market financial crisis early warning, and put forward the innovation of this paper. The market economy is a competitive economy, a competitive economy filled with uncertainty, there are a variety of risks and crises. The environment of the global accounting credibility crisis, corporate financial information distortion become increasingly prominent, especially in recent years occurred the Yinguangxia false information, Lam shares inflated revenue, Enron inflated profits, Andersen false audit and other malignantaccounting fraud case, to bring serious loss to the capital markets have a tremendous impact on investor confidence. The grim reality makes the business, and academia have to reflect the current financial crisis early warning system.The second part, the theoretical basis of the corporate financial crisis early warning system, and Research. This part of the connotation of the corporate financial crisis, corporate finance crisis recognition, Financial Crisis Predicting the three definitions described so that warning on the back of the financial crisis pave the way; Second, appropriate elaboration of the theoretical basis of the financial crisis early warning, to learn the theory of the financial crisis early warning to help us to study changes in the external and internal factors in order to scientifically establish an early warning model to identify the root causes of police intelligence, properlysolve the problems in economic management and financial operations. This article from the corporate warning theory, two aspects of the modern theory of the firm to explore the theoretical basis of the financial crisis early warning.The third part, Cash flow and free cash flow. With the development of economic globalization, Chinese enterprises also began to slowly come to realize the importance of cash flow:In the early20th century, Shanghai Baosteel Group’s financial goals,"the core of the enterprise value maximization is the cash flow budget and control;2003China Unicom’s planning meeting, clearly branch assessment indicators will be corporate free cash flow basis, is the establishment of free cash flow-based performance appraisal system. The above and other companies, these measures indicates that Chinese enterprises will enter the era of cash flow management. This chapter on the cash flow and free cash flow, respectively, are briefly introduced, and its links and differences are described, including the definition and calculation of free cash flow concept, development and specific to this article used. On this basis, this article on the advantages of free cash flow for corporate financial early warning to do a specific analysis.Part IV, Financial crisis warning model. First, determine the choice of research object and research samples, and data selection. Combine the characteristics of China’s listed companies, the choice of the latest data from2010and2011, ST’s63industrial enterprises as a sample of the financial crisis, enterprises, while matching selected63in2010and2011in the same industry, of similar sizeas paired samples, a total of126companies as a sample of this study. And to choose the44manufacturing industry (22ST companies,22non ST enterprise) business as a predictor of the sample. Secondly, a significant test of the selection of predictor variables indicators and indicators are described and empirical analysis. Solvency, profitability, operational capabilities, capacity development, the risk of shareholder profitability selected22traditional financial indicators, four indicators of cash flow and four free cash flow indicators. Crisis enterprises with the normal business to get through the non-parametric tests, there are significant differences in13of the traditional financial indicators, three indicators of cash flow and three free cash flow indicators. Again, due to the more traditional financial indicators, this paper uses factor analysis13of the traditional financial indicators with four main factors to represent. Finally, the establishment of a logistic model, respectively, with the ST-1, ST-2ST-3three-year126industrial enterprises in the data, the first model with cash flow indicators and the four control variables, followed by an alternative to cash flow Free cash flow indicatorsindex model, selected from126industrial enterprises in44manufacturing enterprises in the back with, the test model prediction accuracy.The fifth part, the study conclusions and recommendations. The empirical results of this chapter of this paper are briefly reviewed and summarized the inadequacies of this article. The final recommendations of companies to strengthen the analysis and application of free cash flow indicators, crisis prevention in the first place.The innovation of this article:(1) free cash flow as part of the cash flows, in theory, more than the cash flows of an effective response to the operating conditions. The current use of the index system of free cash flow, not to build model for corporate financial crisis early warning, the article is trying to use this new concept to build a more realistic and accurate early warning model.(2) cash flows of the financial crisis early-warning model and the free cash flow financial crisis early-warning model based on the theory of free cash flow is more effective than the traditional cash flow forecast the company’s financial crisis, the use of empirical methods through the establishment of a unified dataearly warning, compare free cash flow to really improve the effectiveness of early warning.The inadequacies of this article:(1) foreign financial risk early warning of relatively mature, the country to its late start, but to a large extent draws on the research results of the Western developed countries, however, due to practical constraints, the studywith foreign research methods and point of view there are still some differences. As an alternative, such as the definition of domestic crisis, the company usually ST companies may therefore may have some impact on the results of the study, this article is true.(2) because the data are limited, most studies estimate the sample back to the sentence, rather than adopting a new sample to be tested, it may overestimate the predictive ability of the model.(3) because of computing constraints can not reflect all the financial indicators of the enterprise’s overall financial position for effective control, and therefore also impact on the effectiveness of early warning.(4) the selection of financial indicators, due to limitations of the data collection and the level of personal knowledge, may choose indicators and can not be fully representative of significance, the hope that future research on this basis, more in-depth and practical. |
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