Research On Financial Risk Contagion Effect Of YH Group

The formation of enterprise groups through mergers and acquisitions to enhance the market competitiveness of enterprises is an important means to cope with the macro environment and intensified market competition.Enterprise groups have the advantages of integrating resources and forming scale effects,but at the same time,they also magnify the depth and breadth of financial risks and easily cause the contagion effect of financial risks within the group.The frequent occurrence of bond defaults in the capital market in recent years,part of which is due to the contagion of group financial risks,has attracted the attention of both theoretical and practical circles.In-depth analysis of the paths and causes of financial risk contagion in enterprise groups is of great theoretical and practical significance to effectively prevent the contagion of financial risks in groups.This paper chooses YH Group as the object of the case study because the financial risk of the group’s subsidiaries triggered a large number of bond defaults of the group and its subsidiaries within a short period of one year,and its listed subsidiaries were successively implemented ST,which has a good representation in terms of financial risk contagion performance.This paper collects and organizes relevant literature,defines financial risk and financial risk contagion effect,analyzes the path and causes of its financial risk contagion based on domino effect theory,internal capital market theory and financial risk management theory,and puts forward targeted recommendations to prevent financial risk contagion.The study found that:(1)YH Group’s financial risks are mainly transmitted through three paths: the related purchase and sale transactions between YH Life and YH Health,the capital borrowing from the group’s parent company to YH Health and from YH Health to its subsidiaries,and the related guarantees among the group entities,among which the related guarantees are the most important transmission path.(2)The main reasons for YH Group’s financial risk include four aspects,which are the intensification of competition in the industry in which YH Life operates,changes in the international trade environment,and the decline in its profitability due to the setback in its overseas operations.YH Health’s transformational M&A premium is too high and a large goodwill impairment occurs,resulting in a loss.The debt structure is unreasonable,with too much short-term debt and insufficient debt servicing capacity.Slow turnover of accounts receivable,difficulties in repayment and deterioration of operating cash flow position.(3)The causes of financial risk contagion of YH Group are mainly reflected in three aspects.Firstly,there is a lack of supervision and control of the Group’s capital activities,many related parties occupy funds,the related control activities fail,and there is a lack of corresponding early warning mechanism.Secondly,the debt allocation is unreasonable,the parent company has no physical business but bears most of the bond payable obligations,and the overall solvency of the group is weak.Thirdly,the internal governance structure of the group is unbalanced,with a common situation of part-time management,and the independent directors and internal audit departments set up not properly performing their duties.In order to effectively prevent the contagion of financial risks of the enterprise group,this paper suggests the following three aspects to take countermeasures.First,control the source of risk.Enterprise groups should strengthen the competitiveness of their core business to cope with changes in the external environment;reasonably assess the value of the M&A target enterprises to avoid excessive premiums;optimize the financing structure and reasonably allocate debts;and strengthen the management of accounts receivable to ensure the smooth cash flow of operating activities.Second,cut off the contagion chain.The enterprise group should standardize the behavior of connected transactions and information disclosure;give full play to the role of internal audit department and independent directors;establish a financial risk isolation mechanism to control the spread of financial risks.Third,actively adopt risk response measures.The enterprise group should integrate M&A resources to increase operating cash inflow;adopt credit enhancement measures to enhance refinancing ability.