An Empirical Study on the Corporate Financial Distress Prediction Based on Logistic Model: Evidence from China's Manufacturing Industry

Abstract

With the fast development of the capital market and the integration of the global economy, the complexity and uncertainty in the economic field is more and more prominent, and the number of the companies involved in the financial distress is increasing dramatically. In this decade China has become a large manufacturing country in the world, which made it increasingly urgent for Chinese companies to set up corporate financial distress prediction models to enhance the capability of risk management. Most research mainly focused on analyzing the difference in the financial indicators between companies involved in financial distress and non-financial distress, but paid less attention to the corporate non-financial indicators. This paper employs non-financial indicators in the financial distress prediction model to examine 50 manufacturing companies listed in Shenzhen and Shanghai stock market with ST during 2005 and 2007 by the method of the logistic model, in which two financial distress prediction models with financial indicators and the mixture of financial and non-financial indicators are set up. The result shows that the model with non-financial indicators can improve the ability of corporate financial distress prediction, and the timeliness and long-run validity of the mix model is much better than the model with only financial indicators, and the nearer to the company financial crisis occurrence, the better the validity.