| Our research is under a mixed background that the global economy is in serious economic crisis which is a result of subprime credit crisis starting in 2007 and China is opening its market. Consequently, the economic entity operating in Chinese market is facing substantial risk. However, although the risk is rising up, the risk controlling system is far behind the change. Up to today, the Chinese regulators are still using the simple and coarse criterion which relies on the financial accounts based profitability reported annually, while the resulting grades consist of only two part: special-treated and normal.Having thoroughly studied the regulation rule on Chinese stock market, we aim to build up an effective regulation system which can reflect the financial distress and the factors that count. To fulfill the goal, we first study the different definitions of financial distress. Secondly, we build a framework to find out as comprehensive factors that make difference in financial distress. At last, we use default distance as a measure of financial distress and analyze what kind of factors really count in sample listed companies. Finally, with the conclusions we have got, we propose several suggestions on regulation system. |
