A Research On The Early Warning Effect Of Resignation Of Executives On Financial Distress In Listed Companies

As the socialist market economy deepens ceaselessly and capital marketcontinues to improve, financial risk has grown to become a major impediment tobusiness development and enterprise stability. Stronger capacity is requested in riskmanagement, which is a core part of business management. How to effectively predictfinancial distress beforehand leaves to be a challenge for enterprise managers.Firstly, literatures on the definition of financial distress are reviewed. Secondly,the paper reviews typical research in the field of financial early warning model (EWM)to make a clear understanding of the development process and development trends ofit. As a result, this dissertation builds up a framework of methods development inEWM. Then, the paper continues to review literatures about the resignation ofexecutives, which makes essential foreshadowing for the following study. Next, wepropose the hypothesis that the case of non-compulsory resignation of senior financialexecutive and independent director are positive correlated with the possibility of listedcompanies been ST in a few years and that the positive correlation will be weakenedin state-owned enterprises. Finally, this paper selects45listed companies which wasST for the first time in2010as the research object. According to the rules of sameindustry and similar asset scale,45non-ST companies are chosen as matched samples.Relevant indicators of90sample companies from2007-2009are involved in theProbit model. Empirical studies will be conducted to verify our assumptions.This dissertation has several important findings: The non-compulsory resignationof financial executives and independent directors has a significant positive correlationwith the probability of companies been ST, which indicates that they are effective infinancial distress earning warning. In addition, in state-owned enterprises (SOE), thepositive correlation between the resignation of independent directors and financialdistress weakens significantly. As a result, the resignation of independent directorshas a better early warning effect in non-SOE. However, the regulatory effect of SOEis not confirmed in the positive correlation between the resignation of financialexecutives and financial distress.Conclusions in this paper are supplementary to the former research on earlywarning of financial distress. We made an innovation from the perspective of corporate governance, especially form the resignation of executives. Meanwhile, thepaper points out that due to the particularity of Chinese enterprise system, it isnecessary to take the impact of state-ownership into consideration in the followingresearch.