Research On The Relationship Between Financial Flexibility And Financial Risks

Nowadays, the market has changed significantly. The competition of the market is becoming sharper and sharper and the unpredictability of the market increases the uncertainty of innovation activities. The foresaid conditions make companies in GEM face more uncertainties and more risks than those listed in motherboard market. The uncertainties and risks the companies faced place great pressure on companies’financial status, so that the financial requirement is changing all the time. At the same time the market is becoming more and more complex, which leads to the increase of factors that cause the uncertainty of companies’capital operation. So the companies’are facing bigger and bigger risks. In traditional financial management, companies put focus on rigid financial management, in which the financial indicators should be developed and completed in accordance with the appropriate rules and regulations. This method has not been able to respond to the pressure caused by changes in market conditions perfectly, so enterprises need to strengthen financial management flexibility, and the ability of risk aversion.Financial risk comes from change and uncertainty, which is the prerequisite for financial flexibility. So this paper introduces flexibility theory into financial analyze and discuss whether financial flexibility and financial risks in companies in GEM have a certain relationship.To solve this question, the composition and measurement of financial flexibility of companies in GEM and the measurement of financial risks should be solved first. And those are the important and difficult problems to be solved in the paper.The paper starts from theories of financial flexibility and financial risks, which lay the foundation for application.First, we need to quantify the financial flexibility. The paper analyses the characteristics of the gem listed enterprises and risks. Finding out that gem listed enterprises have the followffing characteristics, smaller scale, high technology content, high p/e ratio and high concentration of ownership structure. Also the paper sums up their financial risks in financing, investment, capital collection and income distribution. Combing with theories of financial flexibility and financial risks, this paper discuss the composition of financial flexibility, that is financing flexibility, investment flexibility, operating flexibility from the content of financial activities, and this paper chooses specific financial indicators to measure related financial flexibility.The next difficult problem needs to be solved is the measurement of financial risk. This paper analyses F-score model and Z-score model, and evaluates the advantages and disadvantages of the two models by analyzing and comparing characteristics of the financial indicators choosen by each model. Through the comparition of the advantages and disadvantages of the two models,and the reference of research results of other articles, this paper selects the F-score model to measure financial flexibility of companies in GEMThen this paper takes the method of empirical research, and formulates a multiple linear regression model to test the assumptions this paper puts forward. This paper chooses companies listed in the gem for three years in a row from year2010to year2012as samples. The result of the empirical research shows that financial flexibility and financial risks have a significant negative correlation relationship. So we can come to a conclusion that the financial flexibility of the companies plays an active role in reducing companies’ risks. In this changeable market environment which is full of uncertainty, flexible financial management is very important for companies, so companies should apply rigid management together with flexible management.