A Study On Credit Risk Of China’s Listed Companies

The international financial risk is rapid ampliative and financial crisis is frequent, accompanied by financial liberalization and economic globalization. Capital market is the place of financing resource allocation for listed companies, so the listed companies’credit status is directly related to investor confidence, affecting the rise and fall of the market. In 2007 sub-prime mortgage crisis originated in the U.S. evolved into a global financial crisis, what’s the theory logic and reality root just is the credit risk, therefore, how to conduct studies on the credit risk of listed companies become the focus of attention. This paper, firstly on the basis of previous studies, gives a clear definition of credit risk of listed companies, comprehensive evaluation the existing credit risk measurement methods of listed companies:the financial ratios method, the structural model based on option theory and the laws based on statistical models, compare of their advantages and disadvantages, and then select the theoretically more appropriate in China—KMV model, and then focuses on the basic principles of KMV model, amend the KMV model combining with China’s reality, conduct a special set of individual parameters, then empirical study on all listed companies based on this model from 2003 to 2008. Next empirical study the factors of default distance using panel data model from the perspective of financial indicators, and comparative analysis the credit risk before and after the split share structure reform. At last,it can be drew some unique conclusions.The body of the article is divided into six chapters:The first chapter brings forward the research background and research significance, research ideas and methods, as well as the structure and content of this article.The second chapter focuses on the definition of credit risk of listed companies, and a brief introduction of credit risk management status quo of China’s listed companies.The third chapter recalls the relevant literature on the credit risk of the listed companies in the domestic and foreign. There are three types about credit risk measurement methods of the listed companies:the financial ratios method, the structural model based on option theory and the laws based on statistical models. There are three problems after an introduction to these three methods. At last it can be obtained that the KMV model has relatively good applicability.The fourth chapter described the basic principles of the KMV model, theoretical basis and calculation steps in detail. Then with China’s actual situation, the value of the company’s equity related to the pricing of non-tradable shares is amended. At the same time fluctuations ratio in the value of the equity and other related parameters are set.The fifth chapter conducts empirical studies on the credit risk of China’s listed companies based on KMV model.Choosing all of the listed companies in China’s A-share market as a sample from 2003 to 2008.Taking gold fruit Industry (000722) as an example for describing the specific calculation process, which are each listed company’s annual credit default distance. To a certain extent the results of model calculation reflect the company’s actual credit situation, from a quantitative perspective shows that the effectiveness of KMV model in China. Then descriptive statistics, respectively, the overall credit risk profile and the credit risks of all sectors. The sixth chapter mainly from the perspective of financial indicators, makes a empirical study on the influencing factors of default distance, and comparative analysis the credit risk before and after the split share structure reform.The seventh chapter contains conclusions. This section of the paper summarize the findings and pointed out the inadequacies of the text, puts forward countermeasures and suggestions, as well as follow-up study for the future direction of the in-depth study.It can be major conclusions of the following aspects:1. The validity of the KMV model is better, and the possibility of ST companies is larger than non-ST companies.In this paper, the calculation took into account not only the equity value of the outstanding shares of stock, but also took into account the pricing of non-tradable shares, more accurately reflects the equity value of listed companies in China. Meanwhile, the calculation using the financial data of listed companies, including an open market transaction information, can better reflect the company’s credit rating, while the use of credit default distance DD, can guarantee the company’s credit status of the real-time data updates, time-intensive.2. The KMV model which parameters have been adjustment has a strong recognition of credit risk of China’s listed companies.The credit default distance DD provided by KMV model is from analysis for the listed company’s share price, which reflects not only the company’s history and current situation, but also reflect the market expectation. With the improvement of China’s equity market and the quality of accounting information disclosure, the default distance with KMV model calculation will be more close to the real value. The effectiveness of the KMV model will be better.3. The credit risk of China’s listed companies is gradual increasing,the credit status is not optimistic. From 2003 to 2005,both the mean and the median of the credit risk of the entire stock market had been in decline, which is arose by the inefficient of the enterprise’s internal control arising from inefficient; It’s basically at the flat state in 2006 and 2005 which is mainly due to the split share structure reform; in 2007 and 2008, due to the global financial crisis caused by the U.S. sub-prime crisis, the profits of China’s all listed companies reduced, stock prices fell, performance severely affected, as well as the mean of the DD has also reduced to historic lows.4. The listed company’s operating capacity, short-term solvency, financial leverage coefficient have a significant impact on the default distance, but the impact of company size is not significant. The greater the total asset turnover ratio, the greater the credit default distance, that is, the smaller the probability of occurrence of credit default; quick ratio and the credit default distance have a positive correlation, while there exists a negative correlation between the coefficient of financial leverage and credit default distance.5. The split share structure reform caused the volatility of credit risk of China’s listed companies.The split share structure reform became a big important reason for credit risk magnifying. The stock volatility significantly increased after the reform and the default distance significantly reduced. This is because after split share structure reform, the stock price instantaneous fluctuated, increasing the number of shares in circulation, causing increased volatility in asset values, resulting in increased credit risk. Split share structure reform is conducive to the smooth implementation of the shareholders replacement of a listed company, the changes of the shareholders will cause their changing of supporting, and thus the credit status of enterprises have an impact. Accordingly, the shareholders of the listed companies more easily realized their own stake in the capital market, when faced with short-term debt stress, the listed companies easier access to shareholder liquidity support.There are four unique features throughout the full text of this article:1. This paper in calculating the company’s equity value, discussed the pricing of non-tradable shares. The previous literature does not consider the value of non-tradable shares, or with "broad-brush" set at 22% of tradable shares. While this article refer to the more general study of non-tradable shares pricing, that is, the net assets per share instead of the price of non-tradable shares, so that in calculating the equity value and equity volatility, it took into account not only the outstanding shares, but also took into account the changes in equity and net assets per share impact every month.2. When testing the applicability of KMV model in China, this paper chooses all the listed companies from 2003 to 2008 as samples, while the majority of literature picked more than a dozen, or dozens of listed companies in different industries in the past, and the corresponding ST companies and non-ST companies are divided into two groups to compare. This approach has certain randomness, and the result is biased because it does not truly representative of all of the listed companies. This paper calculated the credit default distance of all listed companies, made a independent samples T test, finally found that the mean of default distance had a significant difference between ST and non-ST companies, indicating the KMV model is suitable for the vast majority of China’s listed companies. At the same time, the DD of some ST companies is positive, while some non-ST is negative, in fact, the existence of such a statement is not affect the overall results, because it reflects the actual situation of our country from another point of view.3. This paper discusses the impact on the credit risks of China’s listed companies split share structure reform of listed companies had. Through the horizontal comparison, it can be found that the split share structure reform was an important reason for increased credit risk of China’s listed companies in 2006.