Early Warning Model Of Financial Distress In Listed Companies Based On Logit Model

Since the establishment of China's stock exchange in 1990,the stock market has developed very rapidly.After nearly 30 years of development,the scale of China's securities market has been expanding.However,due to the late start,the current regulatory measures implemented in the market are still not perfect.If a listed company is in financial difficulties,it will affect the company's normal business activities,but it will also bring losses to equity or debt investors,and even worse,affect the operation of China's entire capital market.Therefore,it is necessary to establish sound regulatory measures.In order to regulate the behavior of Shanghai and Shenzhen market companies,safeguard the interests of investors and the stability of the economic environment,in 1998,the China Securities Regulatory Commission and the Shanghai and Shenzhen Stock Exchanges introduced the ST system to deal with listed companies with abnormal financial conditions or other abnormal conditions.-The "ST",also known as the cap,is intended to alert companies and investors to protect the interests of investors.Finance Distress is also known as the Finance crisis.The most serious situation is the bankruptcy of the company.The financial status of an enterprise is a comprehensive reflection of the business operations of the company.For many years,scholars at home and abroad have conducted a lot of research on the company's financial distress early warning model.The research methods range from traditional univariate models,multivariate linear discriminant models to Logit regression models,to today's neural network models and survival analysis models.Frontier technology,the prediction accuracy of the early warning model is also increasing.At the same time as the research method evolves,the range of influencing factors studied in the early warning model is also expanded from simple financial indicators to non-financial indicators such as corporate governance,property rights,macro factors,etc.,which also improves the effectiveness of the financial early warning model.The main research of scholars at home and abroad is still focused on the factors that affect the removal of the hat of ST companies,but did not study whether these factors really make ST companies out of financial difficulties.In China,because the approval system is still adopted,it is not easy to enter the capital market.Therefore,in order to preserve the listing status,that is,“shell resources”,listed companies that are in financial difficulties will adopt a series of actions such as improving operations,asset restructuring,earnings management,and seeking government.Helping and other ways to try to remove the hat,most of these companies have really got rid of financial difficulties by adjusting their development strategies and improving their governance structure after they are in trouble,but there are also a few companies that have improved their operations through “short-term” behavior.The situation,but did not really change the essence of the "cap" company into financial distress,just cover up this fact and then achieve the "cap",facing the risk of "cap" again.This paper studies the financial data and non-financial data of ST company's hat removal year and the four years after cap removal,and uses the Panel Logit model to establish a financial distress early warning model to predict whether ST company will wear a cap after taking off the hat to verify the cap.Whether the company is really out of financial difficulties.This paper follows the standards of domestic scholars,and takes the special treatment of ST as the symbol of the financial distress of enterprises,and selects the A-share listed companies that have been “capped” in 2004-2014 as the research object.First,the financial companies and the three capped companies in the sample were removed and paired with the company's asset size.Secondly,16 financial variables and 4 non-financial variables representing the company's financial status are selected as the initial variables of the early warning model.Third,descriptive statistics and mean analysis are performed on the selected financial variables and non-financial variables.There are significant differences between the initial financial indicators of profitability,growth ability and cash flow capacity.Fourth,factor analysis is performed on 16 initial financial indicators,and common factors are extracted to avoid the multi-collinearity between variables.Influence,the extracted common factor and non-financial indicators are used as explanatory variables to establish a Logit model based on panel data;fifth,in-sample and out-sample testing.The conclusions of the financial distress early warning model established in this paper are as follows.First,in the financial factors,the subsequent profitability and cash flow changes before the capping can clearly determine whether the capping company successfully escapes from the financial dilemma.The possibility that the capping company has a cap again has a significant negative impact;secondly,in the non-financial factors,the level of corporate governance has a greater impact on whether the capping company has a captivity again.The proportion of shares held by the top ten shareholders and the ratio of equity checks and balances,the proportion of independent directors and the probability of recapture of capping companies have shown a significant negative correlation.At the same time,enterprises are more likely to break away from financial difficulties.ST Company,the third year of the loss-making,the t+1 year regression model has the strongest interpretation and the highest prediction accuracy.Finally,this paper conducts an in-sample and out-of-sample test on the established financial distress early warning model to predict the correct rate.It reached 77.45% and 75.00%respectively.In response to the above conclusions,this paper proposes the following recommendations:(1)Establish a complete financial distress early warning system and pay close attention to the changes in sensitive indicatorsAccording to their own business conditions and company structure,each company establishes an effective early warning system and pays close attention to sensitive indicators that may lead to financial difficulties.The management of the company can find problems in time and take preventive measures as soon as possible in order to achieve the goal of reducing losses..(2)Improve corporate governance structure.The more rational the corporate governance structure and the more stable the overall structure,the more the company can focus on the development of the entire enterprise.The lower the probability of the company falling into financial difficulties,the more necessary the company must strengthen the management of the internal governance structure.In order to give full play to the centralized advantage of the controlling shareholder to the enterprise,to strengthen thesupervision of the major shareholder to the company,it is necessary to increase the share of the top ten shareholders.But at the same time,equity checks and balances can drive company decisions to satisfy the interests of the majority of shareholders as much as possible.All in all,it is necessary to expand the shareholding ratio of the controlling shareholder and ensure that the “red line” of the equity check and balance is not crossed.The purpose of establishing an independent director position is to play a role of checks and balances and supervise the business decisions of business managers.However,at present,China's independent director system is still not perfect,and it is unable to give full play to the role of checks and balances.Therefore,it is necessary to improve relevant systems.