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An Empirical Study of Listed Companies Financial Distress Based on China’s Real Estate

Author: LiuShaoJie
Tutor: GanYuanXia
School: Southwestern University of Finance and Economics
Course: Business management
Keywords: Financial Early Warning Multiple discriminant analysis method Real estate listed companies Financial crisis
CLC: F224
Type: Master's thesis
Year: 2010
Downloads: 813
Quote: 2
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Abstract


The real estate industry occupies a pivotal position in China's national economy, the health of its development is directly related to government departments at all levels, the rise and fall of financial institutions, developers, consumers groups of stakeholders. Regardless the climax and downs of the development of the industry, effective way to avoid the real estate business into a the overheated development or in the doldrums of recession crisis, all the parties concerned about the focus of the study. Since 2000, China's real estate industry as an important pillar industry of the national economy has developed rapidly, but in the process of rapid development, real estate development enterprises, financial leverage is generally too large, caused by the financial exposure of attention from all sectors of society. So, how to do the financial analysis of the real estate development enterprises to effectively control risk, enhance their competitive advantage becomes particularly necessary. Corporate crisis is a gradual process, in which the different stages of the crisis levels can usually be reflected in the degree of deterioration of the financial situation of enterprises, and thus corporate financial early warning means is widely used in corporate crisis prediction and prevention measures. Corporate financial early warning refers to the use of quantitative or qualitative analysis methods, by means of the enterprise's financial statements, business plans and other relevant information, such as accounting, statistics, finance, business management, marketing theory, the financial activities of enterprises operating activities analysis and forecasting, to found enterprises in the operation and management activities of the potential financial risks and operational risks and business managers warned before the crisis, so that management authorities to take effective measures to avoid or mitigate potential risks evolved into loss . Build enterprise financial early warning model is an effective way of corporate financial early warning. Financial early warning model can accurately predict the potential financial crisis or the plight of the company's future operation and management activities, periodic assessment of the current financial situation of the enterprise to facilitate the management of the enterprise, the enterprise into before the financial crisis to take timely and effective forward-looking measures to avoid or reduce the loss of business. In addition, corporate financial early warning model can also be used as an effective tool for the credit rating of the commercial banks or other lending institutions. Early warning model for enterprise financial enterprises to apply for loans can be divided into several categories and treat them differently, thus reducing the workload of the investigation, but also can effectively reduce the cost of the survey. Finally, the correct use of the corporate financial early warning model, but also can be used as the investors' forecasts of future operating conditions, so as to provide investment basis. Financial early warning theoretical and empirical research is more and more mature, but whether domestic or foreign, for specific regions within the sector corporate financial early warning in-depth study and far between, which will become a development trend of the future financial early warning research . The combination of China's real estate industry, the industry of the special requirements of a more rigorous and timely and effective financial monitoring and forecasting of control to corporate shareholders, managers and all parties actively alerts and corrective actions. Foreign classic warning the theory of China's financial early warning research provides a good platform, but some theoretical model is not suitable for China's national conditions, we must build corporate financial early warning model suitable for China in the true sense of the sub-sectors. Accurate and timely financial early warning analysis is both the objective needs of the real estate market competition, the real estate business the necessary safeguards the survival and development of the real estate business. This article is based on this, the real estate enterprises in China's financial early warning research related discussion. Research ideas based on the analysis of the risks associated with the real estate business, find the appropriate financial indicators describe their risk, and thus the use of the financial early warning indicators model to assess the financial situation of enterprises in order to help decision-makers to take timely and effective measures for the corresponding state. The content of this frame design and research methods are summarized as follows: First, the introductory part, and then reviews the theory of general corporate financial early warning; The third part is a listed real estate enterprises in China's financial risk analysis; fourth part is the financial early warning model, including modeling method selection and the principle of selecting and screening methods of the financial early warning indicators; fifth part is the focus of this study, using data of listed real estate companies in China to establish the real estate business financial early warning model and to test the validity of the model; The six parts Conclusion conclusions and limitations. Modeling and testing process is the core of this article. Financial early warning empirical study: First, determine a set of financial distress enterprises according to certain criteria and a set of the financial health of companies;, can characterize the listed basic indicators of the real estate enterprise's financial situation; Third, the use of a certain method of screening indicators , using stepwise selection in discriminant analysis to filter out the appropriate financial indicators into the model, which is the basis for multiple discriminant analysis modeling; using Fisher criterion modeling: fifth, respectively, using the original sample back sentenced to inspection, testing and prediction of the original sample cross-sample test three methods to test the validity of the model, such as problem you need to modify the model. In this thesis, in-depth analysis and comprehensive grasp of China's listed real estate firm characteristics on the basis of the financial data of listed real estate enterprises in China as a sample, using multivariate discriminant analysis method, the establishment of the financial early warning model for listed real estate enterprises in China: Z = -1.797 × 1 16.926 × 2-0.213 × 3 2.384 X1: operating margin; x2: Assets Cash recoveries; x3: Ig total assets; when Z ≧ -0.245, smaller probability of financial distress; when Z lt; -0.245 , the probability of financial distress. The results of the original sample back to the sentence test, cross-validation and prediction sample test results show that the model is overall better to predict whether a company will be in financial trouble, which the original sample back to the contracting inspection, cross-validation accuracy rate in more than 90%;-sample tests for predicting the financial health of the group and the financial distress group, the model of the overall predictions accuracy rate above 75%. Company is divided into two consecutive years in the definition of financial distress, net operating cash flow / liquidity in liabilities less than -0.0115478 divided into financial difficulties enterprise; two consecutive years of net operating cash flow / current liabilities greater than -0.0115478 financial health of the enterprise ; ignored for two consecutive years, including one year net operating cash flow / current liabilities greater than -0.0115478 other net operating cash flow / current liabilities -0.0115478 real estate enterprises. Calculate the Z value of such enterprises, and to analyze its distribution: 95% of such Z-value distribution (0.035,0.200) interval. We define it called gray area. KS normality test, we found that gray area Z distribution normal distribution. This article selection of listed real estate enterprise data to financial early warning model, the model reflects the impact of the financial situation of listed real estate companies Indicators - recovery of cash assets, operating margin, and 1 g of total assets. The establishment of the model selected financial data (2004-2008), narrowing the scope of the study to the real estate industry, the establishment of a financial early warning model for listed real estate enterprises in China, the model's overall prediction accuracy rate of nearly 80%, with a better prediction capability. However, due to the limitations of the data and methods, the model also has the following disadvantages: (1) Compared with previous studies, although the study narrowed it down to a listed real estate companies, but within the real estate industry can be broken down for each sub- industry, this article does not consider the financial indicators of the differences between these sub-sectors. (2) does not take into account the problem of misclassification cost. We will corporate misjudgment of financial distress for the financial health of the enterprise known as the Type I error, the financial health of companies wrongly accused of financial distress enterprise known as Type II error. The article did not distinguish between the two types of errors cost, deemed to be the same as these two costs. In fact, the cost of the first type of error occurred is higher than the cost of the second type of error occurred. For example, the management of the enterprise itself can not identify the enterprise's financial position, financial difficulties enterprises error identified for the financial health of the enterprise did not take timely measures, delay time, companies may be towards a more serious dilemma, and even bankruptcy; banks and other creditors, financial difficulties the Corporate Error Criterion for the financial health of companies, may cause receivables difficulties. Future research to grasp the principal contradiction, focus on the first type of error. (3) Statistical Methods inherent limitations. In this paper, the multiple discriminant analysis method, from a statistical point of view, this method requires two sets of sample covariance matrix equal to the sample data in empirical research, but difficult to do this.

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