Study On The Early-warning Of The Listed Companies’ Financial Distress Based On EVA And Board Governance

In the21st new century, the trend of economical globalization has brought great influence to the development of market economy in China, and under the increasingly fierce competition pressure, the number of companies which fell into financial trouble, or even eventually bankrupted is sharply increasing, which has attracted our attention. In order to prevent financial distress and avoid bringing huge losses to stakeholders, such as investors, creditors, employees, financial institutions such as banks, market regulators and so on, and finally make corporations sustainably develop, establishing an effective early-warning model of financial distress is rather necessary. Through the model, managers can timely find danger signals and analyze the reasons, and then take corresponding measures to avoid the enterprise falling into financial distress or even bankruptcy as soon as possible.According to the general foreign scholars’research, we can find that they generally tend to regard bankruptcy as financial distress. However, according to domestic scholars’research and the realities of enterprises in China, this paper argues that financial distress is a dynamic process which has progressive deterioration, including various conditions from mild financial situation to bankruptcy. In the empirical part, this paper provides a reference to most of the domestic scholars’ research practice, seeing companies which was special treated (ST or*ST company) as the standard of financial distress.Based on brief introduction about financial distress and its early warning, and the base principle analysis between EVA、the board governance and the early-warning of financial distress, this paper defined38corporations which were listed in the market of A shares in Shenzhen and Shanghai and were specially treated for abnormal financial condition (especially for two consecutive years of losses) in2012as financial distress corporations, and selected38listed corporations which had similar industry and asset scale as the pairing sample. After significant difference test and correlation analysis to selected traditional financial indexes, EVA indexes and the board governance variables, this paper used logistic regression model in empirical research, and constructed three regression models. The first put only selected traditional financial index into model, the second joined selected EVA indexes and the third joined the selected board governance variables basing on the second, and finally compared the results of them, showing that their judgment accuracy were81.6%,84.2%and89.5%, which stated that joining EVA and board governance variables into early-warning model of financial distress is scientific and effective.