Empirical Research Of Financial Crisis Early Warning From The Perspective Of Managers’ Behavior

Since the60’s of the20th century, corporate bankruptcies and financial difficulties have become a common phenomenon in economic activities, quite a lot of scholars have begun to study the financial crisis and try to set a model to predict the financial difficulties. As the reform of the socialist market economic system penetrate deeply, the complexity and uncertainty of market economy becomes more and more prominent, In addition, China’s accession to WTO made listed companies facing increasingly fierce competition, companies in financial crisis become quite common. Especially during the second half of2008, the global financial crisis broke out, more listed companies facing financial difficulties, the company was obviously not enough to resist risks. Therefore, both the operators and investors, have an urgent need for a scientific and accurate model of the financial crisis early warning, so that they can detect potential crisis the company, which can help them to take the appropriate measures to avoid or prevent the loss of extreme crisis.The purpose of this paper is to establish a model which can predict the financial crisis much more accurately and earlier from the angle of the manager behavior. Enterprise financial crisis is highly concerned by both the academia and practitioners. From a practical point of view, in addition to the risk management of banks for loans, there are some financial institutions such as Standard&Poor’s corporate credit rating on the classification, they all need to understand the financial situation of the companies and timely forecast whether a company is in financial crisis or not. In addition, the stock market has become increasingly popular, more and more investors to choose investment in listed companies, if they do not have timely access to relevant information, reasonable forecast of the possibility of corporate crisis, they are likely to face greater risk, suffer great loss, and even affect the stability of securities markets. In2001, the Shanghai A shares fell20%, Shenzhen is a whopping of30%. Net of new shares, the total market capitalization of the two cities has shrunk from1.5506trillion yuan to1.2454trillion yuan, that is, during only one year, the total market capitalization of the two cities loss up to3,000billion yuan. At the end of March2011, the market capitalization of Shanghai A shares is up to15.0835trillion yuan, Shenzhen City, also reached5.3496trillion yuan. The daily trading value of Shanghai Stock Exchange is nearly177.4billion yuan, the capital market heat continued unabated. Although the countries keep going macro-control, but all stock market participants, should still be aware of the risks in the securities market, in addition to careful selection of investment targets, the large number of investors need a early-warning mechanism to effectively prevent and avoid a listing company to fall into financial crisis. However, previous financial distress model of traditional financial ratios most choose a short-term prediction model, on the one hand the model will lead to a lag prediction, on the other hand, the prediction rate will be overestimated. Therefore, this article aims to act from the perspective of managers to carry out a more distant early warning model to help the majority of investors and creditors make investment decisions accurately.This paper summarize the warning research of financial crisis at home and abroad, use logistic regression method, select variables from the perspective of managers’behavior, and establish a financial distress prediction model which is more suitable for the Chinese situation. The full text composes of six chapters. The first chapter introduces the research background of this paper, proposed the significance of early warning research from the respective of manager’s behavior, and the key contribution of the research was introduced. Chapter II, first to define the concept of financial crisis under the China’s national conditions, then summarizes the sign of recognition of financial crisis, last, reviews the theoretical basis for early financial crisis warning at home and abroad. In Chapter III, I reviewed and combined the foreign and domestic classic literature of financial distress based on the chose of the variables and research perspective. The next two chapters are empirical study. This part, first, selected45listed companies which are regarded as abnormal ST financial companies for the first time in2008and2009as samples, meanwhile, selected45financial health companies as the paired samples. Then, select13indicators which can describe the managers’behavior well alternative variables. Next, the article deal with the variable descriptive statistics, normality test, significance test, correlation analysis and factor analysis, and then filter out the variable regression model. After testing, the prediction accuracy rate is up to90%.The last chapter of this paper is conclusions, recommendations, limitations and prospects. First, the empirical results of earlier research hypotheses are compared in this article, then, the variables which are not consistent with the hypothesis are explained. Second, make policy recommendations to the majority of listed companies’stakeholders. Finally, point out the limitations of this study and prospect future research.The main contributions of this paper include the followings. First of all, this paper innovatively introduce index from the perspective of the managers’behavior, the establishment of the financial distress model can improve the accuracy of early warning. Secondly, this paper pays attention to recognize the signs of the financial crisis which is conducive to normative choices of early warning indicators as well as to improve the prediction accuracy of the model. Finally, this study is to analyze the relevance between the behavior presented by managers and the financial crisis, rather than emphasis on causality. Through the establishment of models to determine whether the behavior of managers can accurately predict the financial crisis.In addition, this article still has some limitations and insufficiencies which are expected to be improved in the future to further.