Research On The Financial Risk Spillover Effect In Chinese Capital Intensive Industry

Estimating the spillover of financial risk is of great significance for the governance of public companies, which means that the financial risk of an enterprise exists not only on its internal factors, but also by the risk of spillover of the external corporations in the same industry. When a company is faced with financial risk, the financial position of the same industry would also be affected, which shows that:one for contagion effect, the other for competition effect. How to identify the spillover of the risk and determine the relative position of the two effects for the risk control of public companies is the subject of highly practical value. This paper focuses on this problem, with the application of Spatial Econometrics to study the spillover characteristics of the risk in the micro-enterprises. The structure of the thesis consists of the following components:First, we set up a theoretical model of the spillover of the financial risk to describe the phenomenon. The results show that, corporation financial risk is related to the effective income tax rates, financing costs, bankruptcy costs, revenues and its growth, and the uncertainties of its investment projects. This paper aims at the influence in the industry of the financial costs, bankruptcy costs and the income threshold, then, the spillover effects of financial risk is further decomposed into contagion effect and competition effect.Second, we use the financial data of public companies in capital-intensive industry in China as our research samples for the empirical research on the characteristics of spillover, in the view of spatial economics. In the start, test on the spatial correlation of all public companies’financial risk in the capital-intensive industry is required. Then we select the appropriate model on the basis of the test. The test results show that the Moran index is significant, which means that there does exist the spatial correlation of the public companies’financial risk in capital-intensive industry, that is to say, between a company’s financial risk and the financial risk of another company, there is a clear spillover effects. Besides, we also find that the spillover of financial risk has significant industry characteristics. Therefore, this paper also regresses the spatial panel model of the samples of the various industry segments, respectively showing the symbols and size of the corresponding spillover effect of the financial risk, and on this basis to distinguish the strength of the degree of contagion effect and competition effect. Under the weight of the proximity of the company sales, when the public companies’financial risk of a capital-intensive industry increase1%, the risk of others will increase0.2520%-0.2670%. For the various sub-sectors, we also obtain a similar conclusion. At the same time, we also consider the endogenous problem of the spillover effect. The same regression of the enterprises whose leverage is lower show that the effect of risk spillover is still significant. After the test of the endogeneity, we believe that the spillover effect of the financial risk in capital-intensive industry is robust.