Study On Financial Crisis Early-warning Models Of The Growth Enterprise Market

In January1999, China proposed the establishment of GEM（Growth EnterpriseMarket）the first time. October30,2009, GEM came out in Shenzhen After ten years,However, ten years waiting and preparation did not bring GEM stable development.All sorts of unreasonable phenomenon appeared on GEM, for example，GEM cash outfrequently, executives resigned frequently, high earnings ratio in GEM companies andso on. These issues bring great risks to the GEM listed companies. In order to makethe GEM listed companies develop healthy，GEM listed companies need to establisheffective financial early-warning system, and to prevent the emergence of enterprisefinancial crisis,First,the delisting System of GEM, implemented on May1,2012, is used to be thedistinguishing standard between financial crisis companies and financial healthcompanies, then23GEM companies are selected for the financial crisis companies.As pairing companies,23GEM companies are selected for the financial healthcompanies. Then, seventy financial indicators and sixteen corporate governanceindicators are selected. Few financial indicators and corporate governance indicatorscan be selected from those86indicators. They will be used to build the models whichreally suitable for financial early-warning of GEM listed companies. Howevermulticollinearity problem became a big problem as a large number of indicators areselected to make models. In this paper, by using stepwise regression model twologistic models are constructed and multicollinearity problem are solved.Then, the first model is build by the profitability indicator, it is net profit rate ofcurrent assets. The explanatory ability of the independent variable is only19.5%.Correct classification rate of the two types of companies are only61.9%.The secondmodel is build by the financial indicators and the corporate governance indicators.With the addition of corporate governance variables, the second model is morereasonable and perfect. It consists of three parts, namely, profitability, cash positionand salary incentive. The explanatory ability of the independent variables is90.5%.Correct classification rate of the two types of companies are85.7%.Finally, These two models are compared in three aspects, indicator components,correct classification rate and model fit. The second model has advantage in thesethree aspects. Profitability indicators are found in those two models, so the profitability is very important for companies listed in GEM. And four samplecompanies which never used put into the second model, in order to check and measurethe application ability of the second model. Results show that the second modelcorrectly divides the four sample companies into two types. Application ability of thesecond model is very well. Thus, the second model became the effectiveearly-warning model of GEM companies. They can forecast the enterprise’s financialcrisis timely and accurately.