GEM Enterprise Financial Early Warning Model Research And Testing

GEM, which is also called three board markets, has been publicly traded more than four years in China, since it is founded in October 30, 2009. However, the glory of the GEM listed companies’ high-growth is gradually faded off from the disclosure of the Shenzhen Stock Exchange GEM listed companies’ annual reports for the past four years. Meanwhile, bad data were frequently unclosed in their annual financial reports. Therefore how to make a GEM listed company which has a normal finance predict its financial crisis in advance, and reduce its financial risk, have become fundamental problems which needed to solve in GEM market. Since the domestic GEM market is an emerging market, which is quite different from the foreign GEM market, few researches have been done by the scholars from China and aboard. So, this article analyzes the financial characteristics of Chinese GEM listed companies growing stage by selecting samples and effective early warning indicators from the perspective of the corporate life cycle, hoping to establish a financial early warning model which is suitable for China’s national conditions of china’s GEM listed companies.At first, this article has reviewed the early researches relevant to the company financial warning models, and surveyed the theoretical bases related to the construction of the financial warning models which involved corporate life cycle theory, the theory of financial risk, and financial crisis theory. Then, this article determines the appropriate financial early warning indicators system by the principal component analysis from the characteristics of the growth stage of GEM listed companies and constructs company financial warning models by using the method of logistic regression. For the case study, this article is based on the study of data in their annual reports of 11 couples of GEM listed companies. Finally, the financial early warning model is applied to sample groups which include 3 financial normal and 3 financial abnormal GEM listed companies and then evaluate its effectiveness, which show that the financial early warning model has high prediction accuracy.