The Research On The Relationship Between Financial Risk And Corporate Governance Listed On GEM

Since October2009, GEM in China has nearly five years history, and392corporations have been listed on the market. Among these corporations, there are many outstanding ones, and some failed mainly because of fraud. With an increase of financial fraud cases, especially with the burst of scandal news from Wankeshengwu in2013, caused a relatively large number of investors lost their faith in GEM. People cannot help but wondering that if GEM is the cradle of GEM, or a tool of suddenly becoming rich? Generally speaking, innovative enterprise’s failure is so common due to the high-risk aspect of Innovative enterprises. However, GEM in China doesn’t allow a listed company infringes investors’legal rights and interests because of deficiency of their own management. So the essential question that every manager should take it seriously is that, how to establish an efficient management of the company, and increase their profit while decreasing financial risk. National experts’research showed that, it is possible to lower financial risk through developing current modern management system with more comprehensive and scientific designed management structure. The prediction and prevention of financial risk cannot only based on financial data, but instead it should also utilize each factor of management system in order to control financial risk fundamentally.Empirically, this paper chose corporations in GEM as samples. After comparing advantages and disadvantages of different measurements, considering the scientific, practical, innovative of each methods, finally I chose the F model that was invented by Chinese scholars Zhoushouhua, Yangjihua, Wangping in1996. Based on the latest achievement, it divided the structure of corporate governance into broad characteristics, structure of equity, and the relations between executive incentive plans. Then took ten factors as explanatory variables, and analyzed to what influence it will have in financial risks. The outcome turned to have a lot of improving potentials. Factors that have a lot of influence on financial risks such as the degree of broad activity, the level of education that broad members have received, circulation shares, ownership concentration, share balance degree, executive share proportion, executive compensation. Therefore, we can based on the actual situation to analyze enterprises through these perspectives in order to provide practical suggestions to lower enterprises’ financial risks.This article has five sections, and the main details of each section are below:Introduction. This article started with the first corporate governance rules which is invented in Britain in1980s. With the increasing competition, being able to recognize, prevent, and control financial risk of enterprises is getting more and more crucial. Later on this paper will discuss how the emerging GEM strengthen innovative ability and lower financial risk theoretically and empirically.Literature review. This article looked at the structure of management from different aspects such as board characteristics, structure of equity, and the relations between executive incentive plans and financial risk. It showed that foreign scholars tie theories closely with empirical development, in fact practice can even stimulate new theories; However domestic scholars rarely discuss the relationship between management structure and financial risk although they have verify the relatively relation indirectly through financial and business performance. Moreover, at the beginning few scholars examine the study comprehensively, but instead taking only one single variable which limit the research quite a lot.Theoretical analysis and research hypothesis. This article presented concepts of related theories about management, including principal agent theory, theory of property rights, incentive theory, corresponding with structure of broad characteristics, equity structure, and executive incentive plans. Then I analyzed the relationship between these theories and my proposition in this article. Finally, based on ten explanatory variables I analyzed the possibility of financial risks and provide research hypothesis.Empirical research on influence that management structure had on financial risks. Based on previous theoretical analysis and research hypothesis, then I examined reasonability of research hypothesis. Analyzed293listed companies from2011to2013as samples empirically, establishing the multivariate linear model, using methods such as descriptive statistics analysis, relative analysis, and regression analysis to understand the relationship between management structure and financial risks.Conclusion. Through Empirical research, the relationship of management structure of companies listed on the GEM and financial risk is obvious and essential. In the end, I gave suggestions towards these companies and hoped to help with lowering financial risks of managers. The innovative part of this article is that it has not been five years since GEM in our country started back in2009. New market, problems, data have lots of study value, and the conclusions are creative. Moreover, this article also has innovation in the selection of financial risk model, I chose F-early warning model in order to take the cash flow into account, It can reflect and analyse our financial situation in GEM accurately.