Title: Financial distress analysis of 'Special Treatment' companies in China

Authors: Minhaz Uddin Ahmed

Addresses: International Exchange and Cooperation Division, College of Economics and Management, Jiangsu University of Science and Technology, Zhenjiang City, Jiangsu Province 212003, China

Abstract: This paper aims to find out the financial ratios of the 'Special Treatment' (or financially distressed) companies in China that are significantly weaker than those of the regular companies and, consecutively, expose areas of poor financial performance that lead these companies to financial distress. The financial data of 'Special Treatment' companies during the period from 2002 to 2009 have been compared with that of financially non-distressed companies from the same period by applying discriminant analysis. The study finds that as many as five financial ratios, namely cash flow coverage ratio, net income to assets, cash ratio, quick ratio, current ratio and debt ratio, are significantly weaker in financially distressed companies.

Keywords: financial distress; special treatment; Shanghai Stock Exchange; discriminant analysis; China; financial performance; financial ratios; cash flow coverage ratio; net income to assets; cash ratio; quick ratio; current ratio; debt ratio.

DOI: 10.1504/IJCCM.2017.082388

International Journal of Chinese Culture and Management, 2017 Vol.4 No.1, pp.19 - 29

Received: 26 Jan 2016
Accepted: 24 Jun 2016
Published online: 22 Feb 2017 *