1、Research on the relationship between Corporate Governance and Financial Crisis-Empirical Study from Listed Manufacture CompaniesLiu Yan-wen Sun Qian（ The Management School of Dalian University of Technology, Dalian, 116024, China）Abstract： By choosing 439 listed manufacturing company during 2003-200
2、5 ,the author got a comprehensive financial crisis F value from six respects(companys debt paying ability , profit ability , operation ability , growth ability , structure of the assets , cash flow) as the dependent variable and took a series of variable which can reflect the companys domestic and f
3、oreign mechanism as the independent variable. Then, the author established the model of relationship between corporate governance and financial crisis. The research showed: the managers pay, President and general manager unifying, market competition degree, etc. have remarkable relations with compan
4、ys financial crisis and the largest shareholder ownership and financial crisis present “W” type curve relation.Key Words： Financial Crisis； Corporate governance; Relationship1. Issues raisedThese years, some scholars try to research on the relationship between corporate governance and financial cris
5、is from the empirical perspective. But deeper analysis of the companys financial crisis is still the key to the research.The main research on the corporate governance and financial crisis now is in the following areas. One is the relationship between ownership structure and financial crisis. Claesse
6、ns et. (2000)1 and Faccio and Lang(2002)2 show through the empirical analysis that average 60% of the listed companies in the world have absolute control of the shareholders, that is in the high concentration of ownership company ,shareholders who control the company must be given enough motivation
7、,so that they could consider questions from the whole company ,to help the company avoid a financial crisis, The empirical results show that the controlling shareholders stake and the financial crisis had a negative correlation .Sun Zheng and Jiang Xiu-hua introduce the ownership concentration of va
8、riables into financial crisis warning model which raise the forecast ability of the model. The other is the research of relationship between the feature of the board and financial crisis. The study of Tricker (1984)4 thinks that the introduction of external board can increase the objectivity and ind
9、ependence of the board. Salmon (1985) 5 believes that the Board should have only three internal: CEO (Chief Executive Officer), COO (chief operating officer) and chief financial officer (CFO), he particularly emphasize the importance of outside directors. Sun Yong-xiang (2001) 6 believes that the bi
10、g sizes of the board cause a lack of innovation and efficiency and led the board to dysfunction.The research of the financial crisis at home and abroad has made fruitful achievements, but we also found some deficiencies that main performance in the following areas:First, the financial crisis study c
11、oncentrate on the financial crisis forecasting on the basis of financial data.Second, there are too few research methods. Although some scholars now aware of corporate governance and financial crises have great relationship, and so, introduce the corporate governance into the financial crisis foreca
12、sting. Most scholars use relevant variables to characterize the structure of corporate governance, use logic regression analysis on a regression model, with 0 and 1 represent the normal company and the financial crisis company.Third, the corporate governance variables selection is one-sided .The cur
13、rent articles about the affection corporate governance on the financial crisis, majority focus on a particular area. For example, ownership structure, the structure and composition of the Board, the role of the independent board and so on, were somewhat one-sided. There are also different views on t
14、he impact of the financial crisis by some variables, many are not unified.Therefore the above issues will undoubtedly solve the deeper-rooted reasons the financial crisis occurred, help managers management companies better, to prevent or defuse financial crises that listed companies may arise, to en
15、sure the normal operation of listed companies, to protect the interests of relevant parties, to promote the socio-economic and the healthy development of the stock market.2. Study design2.1 Sample SelectionThis paper study manufacturing listed companies. First, the financial crisis under the definit
16、ion of this paper, ST companies in financial crisis as its sign of the financial situation was abnormal.We choose data from 2003 to 2005 first ST companies, excluded B shares and H shares of the company. Second, the sample companies have at least 4 years data of corporate governance, because the com
17、pany is special treated have questions in several years. So this paper excludes the listed company less than four years.According to the above selection criteria, we selected a total of 439 listed companies.If the company was called “ST“ was defined as the T, the sample data must be declared “ST“ th
18、at the previous year, and two years ago, three years ago, namely, (T-1) year,(T-2) and (T-3) years. Finally, the results of samples were shown in Tab1. Research data and report data on stock transactions and corporate governance information from the annual report of listed companies.2.2 Corporate go
19、vernance variables measure Choose indicator variables in Tab.2,there are four reasons.Tab.1 Sample DescriptionAnnualST companiesNormal companiesTotal2003 18 117 1352004 17 112 1292005 23 152 175Total 58 381 439Tab.2 Corporate governance variablesmanagementIndicatorsIndicators codeIndicators meaningY
20、1 The proportion of first large shareholdingshareholding structure Y2The type of the first large shareholder(country-controlled 1,otherwise 0)Y3 The proportion of big five executiveselection of the managers , motivations and constraintsY4 LN(executives average salary)Y5 The proportion of independent
21、 directorsY6Whether chairman and CEO are the same one (if yes,1,otherwise 0)Y7 Board Sizecharacteristics of the BoardY8 Stock proportion of BoardY9 Whether the financial statement is true(if yes 1，otherwise0)Internal governance variablesinformation disclosure Y10 Whether the company is honest(yes 1,
22、otherwise 0)Environment governance indexY11Market indexY11a、Government intervention indexY11b、The level of the lawY11cExternal governance variablesDegree of the competition in product marketY12operating expenses ratio (operating expenses / income of their primary business)(1) Most of the papers in t
23、he current choose financial indicators rather than non-financial indicators. But such as shareholding structure, characteristics of the board are also very important.(2) Through domestic and international papers about corporate governance evaluation and corporate governance structure, summarizing th
24、e indicators of the level of corporate governance and structure of corporate governance in literature. The research on corporate governance is main internal governance and external governance, internal control includes not only shareholding structure, characteristics of the Board, but also election
25、of the managers, motivations and constraints and information disclosure. External management includes control of the enterprise market, legal basis, interests of small and medium investor protection, environment governance index and the degree of competition in the market.(3) According to the method
26、 in Xia li-juns “government control, the environment governance and corporate values - from the experience of Chinas stock market“ and take advantage of data in the process of market establishment by Fan Gang and Wang Xiao-lu.7(4) Selected operating expenses ratio (operating expenses / income of the
27、ir primary business) as a corporate governance external variables - the proxy variables of competition level of the product market. We know that operating expenses mainly refers to enterprises expense in the course of product sailing products and providing labor , and the expense of sales organizati
28、on dedicated, including: transportation costs, handling costs, packaging costs, advertising, exhibition fees, leasing costs (excluding finance leases) , as well as the staff wages of the sales organizations, benefit costs and other recurrent costs . Generally, the more intense market competition, th
29、e greater enterprises need to pay for the operating expenses of the sales revenue proportion.2.3 The measure of enterprise financial crisisThis section attempts to make financial crisis quantitative, there are many scholars in this regard, such as classic Z-score model of Altman (1968) 8, the domest
30、ic F-score model of Zhou Shou-hua(1996)9 and Y-score model of Yang Shu-e (2003)10.Because the samples in this paper and Yang Shu-e are different .So authors only reference the approach of calculating Y-score of financial crisis.This paper selects 31 indicators from six respects(companys debt paying
31、ability , profit ability , operation ability , growth ability , structure of the assets , cash flow),using principal component analysis identified eight main components ,that can cumulative explain 85.03% of the changes of the variance, as Table 3.According Tab.3, we get (2.1)F=0.33131*FAC1+0.14654*
32、FAC2+0.12173*FAC3+0.07229*FAC4+0.05644*FAC5+0.04465*FAC6+0.04211 *FAC7+0.03515* FAC8 (2.1)Tab.3 Results of principal component analysisInitial eigenvalue Extraction of the total square loadPrincipal component eigenvalueThe percentage of the overall%The percentage accumulated%eigenvalueThe percentage
33、 of the overall %The percentage accumulated%1 6.62625 33.13126 33.13126 6.62625 33.13126 33.131262 2.93088 14.65442 47.78568 2.93088 14.65442 47.785683 2.43453 12.17267 59.95835 2.43453 12.17267 59.958354 1.44581 7.22904 67.18740 1.44581 7.22904 67.187405 1.12889 5.64447 72.83187 1.12889 5.64447 72.
34、831876 0.89302 4.46508 77.29695 0.89302 4.46508 77.296957 0.84221 4.21105 81.50800 0.84221 4.21105 81.508008 0.70301 3.51505 85.02305 0.70301 3.51505 85.02305And then get F values of every sample, bigger F value is, better the companys financial situation, and less vulnerable to financial crisis.2.4
35、 AssumptionAssumptions are referred in Tab.4.3. Research on the relationship between Corporate Governance variables and Financial CrisisWe have the following regression model test the hypothesis: 2110 KaYnni (3.2)where， is intercept and is residuals. ，0a1Kare controlling variables , on behalf of the
36、 natural 2Klogarithm assets and rate of liabilities respectively. Considering the influence of the size of company ,we take total assets natural logarithm as controlling variables. Considering previous studies, we take the rate of liabilities as controlling variables. Because we choose manufacture c
37、ompanies as samples, so do not need industry controlling variables.3.1 The result of the analysisIn this paper, we use stepwise regression method .It is selected on the basis of forward, with backward method, after each variable into the equation, determine whether variables should be removed from t
38、he equation to make sure every variable is significant, and avoided variables multicollinearity.Regression Model is seen in Tab.5.Tab.4 AssumptionGuestions AssumptionAssumed1a：The first large proportion of shareholding and the financial crisis in relations with curveShareholding structure and financ
39、ial crisis Assumed 1b：The type of the first shareholder have no significantly affect on financial crisisAssumed 2a：The company which executives have big proportion stock is not easy in financial crisisMotivation of the executive and financial crisis Assumed 2b： The company which executives have good
40、 salary is not easy in financial crisisAssumed 3a： Independent directors and the occurrence of financial crises no significant relationshipAssumed 3b：The company which chairman and CEO are the same one is easy in financial crisisAssumed 3c：big size board is easy in financial crisisBoard and financia
41、l crisisAssumed 3d：The company which board have a big proportion stock is not easy in financial crisisAssumed 4a：The company which Y9 is 0 is easy in financial crisisInformation disclosure and financial crisis Assumed 4b：The company which Y10 is 0 is easy in financial crisisAssumed 5a：The company wh
42、ich have a low environment governance index value is easy in financial crisisExternal governance and financial crisis Assumed 5b： The company which have a high degree of the competition in product market is easy in financial crisisFrom Tab.5 and 6 ,there are five variables of corporate governance en
43、tered the regression model in year T-1, The regression equation goodness-of-fit is 0.53, There are three variables of corporate governance entered the regression model in year T-2, The regression equation goodness-of-fit is 0.30,the model overall pass the test and the linear relationship is right.Ta
44、b.5 Multivariate linear regression model outlinedYear Model R R 2 After adjustment R 2DW StatisticsT-1 7 0.73 0.53 0.52 1.58T-2 5 0.626 0.392 0.386 1.959T-3 6 0.555 0.308 0.299 2.075Tab.6 Analysis for multiple linear regression model coefficientsNot standardized coefficientSig.Not standardized coeff
45、icientSig.Not standardized coefficientSig.IndicatorsT-1 T-1 T-2 T-2 T-3 T-3(Constant) -4.132 .000 -4.652 .000 -3.025 .000K1 -0.942 .000 -0.901 .000 -0.619 .000K2 0.138 .000 0.160 .000 0.081 .000Y4 0.117 .000 0.132 .000 0.121 .000Y12 -1.140 .000 -1.353 .000 -1.087 .000Y9 0.090 .001Y6 -0.113 .004 -0.0
46、79 .030 -0.153 .014Y10 0.159 .033Y5 -0.267 .021(1) From the management election motivation and restrictive, we know the average annual salary of executives and the companys financial crisis F value is correlation.So the increasing of executives wage can reduce the probability of crisis. Jensen and M
47、urphy(1990) have the same idea. But the stock proportion of the executives do not enter regression model, so it is not significant. The result is same with most of scholars (Wu Shi-nong , Wu Peng-chao ,Bai Chon-gen).The reason is in China, the executives have so little proportion, less than 1%. This
48、 also shows that in the current reward motivation is the main motivations methods in listed companies. These empirical results confirm the assumption 2b, but not 2a.(2) From the external governance, we know that the ratio of operating expense is significant negative. The ratio of operating expenses
49、and the companys financial crisis F value are negative correlation, or the proportion of the increase in operating expenses can significantly increase a companys probability of financial crisis. Empirical results affirmed the above assumption 5b. But corporate governance environment index did not enter regression model. Although level of the market competition, degree of government intervention and legal environment for enterprise influential financial crisis in theory, but there is no evidence. The conclusions are same with Xia
