Bankruptcy Prediction Model in China: Prediction of Financial Distress in Listed companies of Chinese Manufacturing Industry

Abstract

The establishment of prediction model for financial distress is not only for the interests of the wide stakeholders, but also to maintain a healthy and stable environment for the development of stock market. This paper starts from the definition and drivers initiating financial distress and then draws support from previous scholars on developing the model. This paper targets “ST” companies in Chinese manufacturing industry in 2017. 24 ST companies and 24 non-ST companies are identified as control groups. Logistic regression is applied to build financial distress warning model. With introduction of state ownership into the model, with the aim to explore potential influence imposed by government to protect state-owned companies, this paper injects new vitality and impetus into research on prediction of financial distress. Important contribution of this paper includes discovering financial indicators that play an important role in prediction of financial distress, refining previous logistic model by extending time scale and undertaking more detailed analysis on manufacturing industry. The paper finally provides an appropriate model for prediction of financial distress for listed companies in Chinese manufacturing industry