Empirical Study On The Influence Of External Governance To Corporation Financial Risk

Both corporate governance and financial risk are important subjects in the study of economic management. In addition, more and more scholars begin to pay attention to the combination of the two subjects and do a series of related research in this field. The study of corporate governance can be divided into the internal governance and the external governance, the current scholars mainly focus on the influence of the internal governance to corporation financial risk, and make very little research on the influence of the external governance to the financial risk. However, as the significant part of the corporate governance and as the environmental basis of the internal governance to play its role, the external governance cannot be ignored in producing the influence on the financial risk of corporate. Therefore, through introducing more external governance factors, studying the influence of the external governance to corporation financial risk and analyzing the differences of these factors between the industries will be of great significance.First of all, this paper makes a definition on the concept of external governance and financial risk, and reviews the correlational research of corporate governance and financial risk. Then this paper introduces the theoretical basis which are principle-agent theory, comprehensive risk management theory and stakeholder co-governance theory. Next, this paper makes the relevant analysis from the factors of market environment governance and stakeholders governance which are consist of seven aspects in external governance and proposes seven assumptions based on the analysis. This paper selects the year of 2007-2011 China Shenzhen and Shanghai A-share listed company data as the study sample, and makes an empirical study by a multiple linear regression model and inspects the important influence of external governance to financial risk. The result of the regression analysis shows that: competition in product markets, competition in the control right markets, bank creditors, the audit of accounting firm and the support of customer have a significant correlation with corporate financial risk, and they produce an important influence on corporate financial risk; the level of marketization and the trust of supplier have no significant correlation with corporate financial risk, and they produce little influence on corporate financial risk. In addition, the impact of these external governance factors on the enterprise financial risk exists differences between the industry is also verified. At last, on the basis of analysis in the empirical results, combined with china’s actual conditions, the author proposes five relevant suggestions as follows:strengthen the risk management in competitive products market, strengthen the supervisory control of bank creditors, strengthen the constraints of external audit constraints, improve the interaction mechanism of enterprises with their suppliers and customers and focus on the influence of the industry. This paper hopes to provide a reference to improve the external governance of listed companies in China and the prevention of corporate financial risk.