Corporate Failure Prediction Models for Advanced Research in China: Identifying the Optimal Cut Off Point

Zhen Jia Liu and Yi Shu Wang

Asian Economic and Financial Review, 2016, vol. 6, issue 1, 54-65

Abstract: The rapid growth of the Chinese economy has resulted in Chinese listed companies entering numerous global supply chains, and thereby contributing to the globalization of economies. Accurately predicting corporate distress is a crucial concern for enterprises, managers, investors, creditors, and supervisors. In this study, data from the 2003-2013 (excluding 2008) was analyzed, and a logistic model was applied to analyze critical factors. We developed Special Treatment (ST) model to measure distress of companies listed in China. The results indicate that the optimal cut-off point (one, two, three and fourth quarters before a failure), and the debt ratios (one quarter before a failure) or unadjusted economic value added (two, three and fourth quarters before a failure) is superior in predicting corporate failure in China.

Keywords: Corporate failure prediction; China; Cut off point; Economic value added; Special treatment; Distress. (search for similar items in EconPapers)
Date: 2016
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