Stock Reduction Of Executives And Corporate Financial Distress Prediction

Stock reduction of executives refers to directors,supervisors and senior executives selling shares of the company they work for.There were 1855 companies where executives sold shares in China’s A-share market during 2018.The total amount of stock reduction of executives was 312.6 billion yuan,which was highly criticized by the market.Because the executives are the forefront of the company’s business management decisions,they can get the first-hand information of the company.Compared with the outsiders,they have information advantages.Insiders trading obtains excess returns,which was highly concerned by capital market and regulators.So,will executives make large reductions because they predict that the company may be in financial crisis in the future? If so,can executive reductions be used for corporate financial crisis prediction?This study takes the enterprises in the Shanghai-Shenzhen A-share market in 2007-2015 as a sample,and establishes a logistic model to explore whether the stock reduction of executives can be used for the prediction of corporate financial crisis.The basic research ideas of this paper are as follows: Firstly,the paper examines whether the stock reduction of executives can be used for the prediction of corporate financial crisis,and the relationship between the reduction of executives and the possibility of financial crisis.Secondly,Some characteristics may affect the usefulness of stock reduction of executives in financial crisis predicting.For the purpose of this article,according to the nature of property rights,internal control quality,analyst attention and institutional investors’ shareholding ratio,research is conducted in each group.Whether the information on the reduction of holdings can be used for corporate financial crisis prediction.Thirdly,this paper use the net reduction ratio of executives to conduct a robustness test,which makes the empirical research results of the article more stable and reliable.Finally,this paper studies whether the prediction accuracy of the financial crisis prediction model improves after the introduction of the executives’ stock reduction ratio,and proves the information usefulness of stock reduction of executives in financial crisis prediction.The empirical results indicate that: 1.The stock reduction of executives can be used to predict the financial crisis of the enterprise and has information usefulness.After controlling the relevant indicators,the higher the executives’ stock reduction ratio,the more likely the company will fall into a financial crisis next year.This paper analyzes the factors that may affect the executives’ stock reduction behavior,and studies whether the senior management reduction in each group can be used for the prediction of corporate financial crisis.We find that:(1)compared with state-owned enterprises,non-state-owned enterprise executives The relationship between reduction and the financial crisis in the next year is more significant and more informative.(2)Compared with the group with high internal control quality,the relationship between the reduction of executives in the group with poor internal control quality and the financial crisis in the next year is more significant and more informative.(3)Compared with the group with high concern of analysts,the relationship between the reduction of executives in the group with low attention and the financial crisis in the next year is more significant and more informative.(4)Compared with the group with low shareholding ratio of institutional investors,the relationship between the reduction of executives in the group with high proportion of institutional investors and the financial crisis in the next year is more significant and more informative.3.The introduction of the executive reduction ratio can significantly improve the prediction accuracy of the financial crisis prediction model.Before and after the introduction of the executive reduction ratio,the prediction accuracy of the financial crisis prediction model is 81.45% and 84.14%,respectively,and the accuracy is significantly improved,confirming the high The information usefulness of the reduction ratio in the financial crisis forecast.This conclusion confirms the usefulness of executive reduction in financial crisis forecasting and provides new ideas for external investors to predict financial crisis.At the same time,the conclusion confirms that under the current stricter regulatory measures,executives still use information advantages to avoid losses,which helps relevant regulatory authorities to target executives to reduce their holdings.