Determinants of Financial Distress of ST and PT Companies: A Panel Analysis of Chinese Listed Companies

Abstract

Many prior studies have been devoted to financial distress of Chinese listed companies over the last two decades. However, these distressed companies are still failed to find out the exact determinants of financial distress. Therefore, the purposes of this paper are to provide an investigation of financial distressed companies trading on Chinese Stock Exchanges, and to elaborate the determinants of falling into financial distress by using a panel data set containing information on the stock market under Binary Logit Model during the period 1998-2005. The empirical findings present the relationship between 13 independent variables and the probability of financial distress, and particularly analyze the impact of corporate governance on Chinese financial distressed companies. Of these corporate governance variables, agency costs and ownership structure appear to be important factors to affect the probability of financial distress.

Keywords: Financial Distress, Corporate Governance, Agency Costs, Ownership Structure, Board Size

JEL Classification: G30, G32, G33