Causes For Empirical Evidence On Financial Crisis

Financial crisis has been a key issue in the economic system. Over the past years, there are a great deal of financial crises both in the developed and developing economic units all around the world. While some are of the opinion that capricious macroeconomic factors trigger the financial crises, many people are convinced that the main reason hinges on corporate performance. This study discusses the relationship between financial crisis and risk indicators on firm's performance, the structure of ownership and the related party transaction. Our samples are 66 publicly publishing companies that suffered financial crisis across fourteen industries and 168 normal companies, exclusive of OTC companies, in Taiwan. The data term that we use to select samples is since 1999 to 2004 with panel data and the statistic model is probit model. The empirical results are shown as follow:1, Risk indicators on corporate performance, especially the risk indicator on operating capital, are significant factors in explaining the occurrence of financial crisis. The percentage of ownership hold by directors demonstrates a nonlinear relationship on financial crisis. Pledge ratio by board members has positive impact on financial crisis. The variables standing for the related party transaction both have positive impact on financial crisis.2, In 14 industries, compared to other industries, firms in the Food industry and the Electronic industry are vulnerable to financial crisis in probability on average.3, As far as the average crisis index or the average operation performance is concerned, Tourism industry has the lowest crisis index in average. In addition to Tourism industry, Cement industry, Transportation industry, Other industry and Plastic Indutry also have lower crisis indexes in average than other nine industries.4, According to data in different year, it is found that financial crisis model with data one year before suffering financial crisis are better than one with data two year before suffering financial crisis in overall prediction. In addition, two models both show that with the inclusion of explanatory variables such as risk indicators on firm's performance, the structure of ownership and the related party transaction, and industry dummy variables, type I error decrease greatly.