Are Bankruptcy Precursors Similar in China and the US?

Abstract

Early warning models are among the most utilized developments in finance. A good early warning model can predict with a high degree of accuracy the likelihood that a healthy company will either go bankrupt or become financially distressed. B2B companies supply products are now global. This paper extends the research comparing indicators of financial health to the subject of how industrial globalization affects early warning models. In specific, it considers model develop across two continents: North America and East Asia. The target of the research are global auto suppliers, those companies deliver parts and equipment to original equipment auto manufacturers. The findings are particularly important because of the collapse and resurrection of US OEMs. The modeling effort tested the ability of a single global model of financial distress to capture the determinants of auto supplier health on two continents. Individual models for each continent proved to be superior to a single model.

Keywords: Financial Health, Bankruptcy, Financial Distress, Early Warning Model, Logit Regression, China, Global, International Business

JEL Classification: A11, C12, C33, G01, G33, M21