The determinants of bankruptcy for chinese firms (Article)

19 Feb

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Review of Pacific Basin Financial Markets and Policies

Volume 17, Issue 2, June 2014, Article number 1450012

The determinants of bankruptcy for chinese firms (Article)

Ni, J.a, Kwak, W.b, Cheng, X.b, Gong, G.c

a Department of Economics, University of Nebraska at Omaha, Omaha, NE 68182, United States
b Department of Accounting, College of Business Administration, University of Nebraska at Omaha, Omaha, NE 68182, United States
c School of Economics, Shanghai University of Finance and Economics, Shanghai, China

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The global financial crisis in 2008 increased the number of business failures in the U.S. as well as in China. The Chinese economy has also been affected by the recent global financial crisis given the fact that the Chinese economy depends heavily on international trade. Our study tries to find the determinants of bankruptcy in Chinese firms. Both logit and survival model analyses provide consistent results on the determinants in predicting distressed firms in China. Our results suggest that firms with liquidity problems and firms experiencing a decline in profits are more likely to file for bankruptcy. In addition, we find that, compared to state-owned enterprises (SOEs), collectively-owned enterprises, private-owned enterprises, and foreign-owned businesses are more likely to file for bankruptcy. This conclusion is robust after controlling for regional differences. The findings of this study show that the financial variables developed by Altman [Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. Journal of Finance, 23(3), 589-609] and Ohlson [Financial ratios and probabilistic prediction of bankruptcy. Journal of Accounting Research, 18(1), 109-131] perform reasonably well in determining business failures of Chinese firms even though SOEs and shadow financing exist in China. © 2014 World Scientific Publishing Co. and Center for Pacific Basin Business, Economics and Finance Research.

Author keywords

bankruptcy; China; logit analysis; survival model

Indexed keywords

GEOBASE Subject Index: banking; economic conditions; financial crisis; international trade; logit analysis; prediction; state owned enterprise

Regional Index: China; United States

ISSN: 02190915Source Type: Journal Original language: English

DOI: 10.1142/S021909151450012XDocument Type: Article

Publisher: World Scientific Publishing Co. Pte Ltd

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