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The Determinants of Bankruptcy for Chinese Firms

Author

Listed:
  • Jinlan Ni

    (Department of Economics, University of Nebraska at Omaha, Omaha, NE 68182, USA)

  • Wikil Kwak

    (Department of Accounting, College of Business Administration, University of Nebraska at Omaha, Omaha, Nebraska 68182, USA)

  • Xiaoyan Cheng

    (Department of Accounting, College of Business Administration, University of Nebraska at Omaha, Omaha, Nebraska 68182, USA)

  • Guan Gong

    (School of Economics, Shanghai University of Finance and Economics, Shanghai, China)

Abstract

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.

Suggested Citation

  • Jinlan Ni & Wikil Kwak & Xiaoyan Cheng & Guan Gong, 2014. "The Determinants of Bankruptcy for Chinese Firms," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 17(02), pages 1-22.
    • Handle: RePEc:wsi:rpbfmp:v:17:y:2014:i:02:n:s021909151450012x
    DOI: 10.1142/S021909151450012X
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    References listed on IDEAS

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    1. Steinfeld,Edward S., 1998. "Forging Reform in China," Cambridge Books, Cambridge University Press, number 9780521633352, July.
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    Cited by:

    1. Wei Huang, 2016. "Tunneling through related-party loan guarantees: evidence from a quasi-experiment in China," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 857-884, October.
    2. Tian, Shaonan & Yu, Yan, 2017. "Financial ratios and bankruptcy predictions: An international evidence," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 510-526.
    3. Agata Lozinskaia & Andreas Merikas & Anna Merika & Henry Penikas, 2017. "Determinants of the probability of default: the case of the internationally listed shipping corporations," Maritime Policy & Management, Taylor & Francis Journals, vol. 44(7), pages 837-858, October.
    4. Layla Khoja & Maxwell Chipulu & Ranadeva Jayasekera, 2016. "Analysing corporate insolvency in the Gulf Cooperation Council using logistic regression and multidimensional scaling," Review of Quantitative Finance and Accounting, Springer, vol. 46(3), pages 483-518, April.

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    More about this item

    Keywords

    China; bankruptcy; logit analysis; survival model; C5; G15; G33;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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