Financian Risk Early Warning Model Study Introducing Enterprise's Asset Quality Indicators

Financial risk is quite common during company's development course, whose direct performance, in a few words, is that a company just can't repay debts that are due and which could be triggered by various factors like company's profit-making ability, company's operation ability, company's inner-control and so on. Obviously the financial risk is harmful for a company, influencing its normal economical activities at best, driving it into bankruptcy at worst.In order to help companies to cope with financial risk, experts and scholars figured out using related financial dates to build financial-early warning models to forecast the financial risk. This method lies in a theory that company's financial risk is not formed overnight and the process of its formation is gradual and contains many triggering factors, and if we can find and control those factors in advance then it is possible to reduce the occurrence of the financial risk to the least. This paper is also based on this theory, trying to add the asset quality indicators, which are not adopted by most researchers and proved having close relation with financial risk, into the building of financial-early warning models to see whether the asset quality indicators can improve the can improve the accuracy of the financial early-warning models.This paper consists of three parts: theoretical analysis, empirical analysis, measures and suggestions. In the theoretical analysis part, this paper first elaborated the definition of financial risk and common financial-early warning models, coupled with the definition of asset quality and asset quality assessment system, then introduced the relationship between financial risk and asset quality, or in another words, explained how the asset quality affects the financial risk. In the empirical analysis part, this paper first selected sample companies and research dates, selecting 48 listed companies which were special treated by CSRC for the first time in the year 2010 to 2013 because of having financial problems and 96 matched listed companies whose financial condition were good at the time and these 144 companies' dates, and then used significance test and collinearity-diagnostics to narrow down the final indicators which would be used in the building of logistic regression models, and then built two kinds of financial early-warning models separately, one of which only included the common financial indicators and the other one of which included asset quality indicators as well as common financial indicators by these final indicators. By comparing the results of these two models, this paper found that the introduction of the asset quality indicators can improve the accuracy of the financial early-warning model. In the last part, this paper gave measures and suggestions like establishing risk awareness and conducting excellent management of assets to managers by combining theoretical analysis and empirical analysis above to help reduce the occurrence of financial risk.