Cross-strait Financial Distress Pre-warning Models that Include Corporate Governance: Reestimating Ohlson's Models

摘要

This paper uses listed cross-strait (China and Taiwan) companies during 2006–2010 to demonstrate the application of a logistic regression to establish financial distress pre-warning models. The bankruptcy indicators are selected by three stages, namely a Wilcoxon test, a ridge regression, and a stepwise refinement. We attempt to determine whether predictors can be obtained by incorporating corporate governance variables that could increase failure predictability. Both non-outstanding state shares and share-holding of placement institutions are flagged positively and significantly in the pre-warning model in China; this finding conforms with the "conflicts of interest hypothesis." The share-holding by foreign institutions negatively impacts the financial crisis, a finding that is in keeping with the "efficient supervisions hypothesis." The negative and significant relation associated with the director share-holding and financial crisis in Taiwan is in accordance with the "convergence of interest hypothesis." Cross-shareholding has a positive effect on a firm's failure in Taiwan. The results also demonstrate that the integrated model has the best capacity to identify pre-warning models among all models. For the models of estimation, Taiwan's model is slightly superior to China's model.