Predicting financial distress using financial and non-financial indicators: Evidence from Chinese listed manufacturing companies

Sammanfattning: This paper investigates empirically the utility of combining non-financial indicators to financial models with only financial indicators to explain the company financial distress in the Chinese manufacturing industry using a sample of 614 company-year observations of listed companies during the period 2010-2020. This paper develops financial distress prediction models for Chinese listed manufacturing companies. The results show that, (1) a company with a higher market value of total shares over total liabilities, top 10 shareholder holding rate, institutional investor holding rate, analyst rating, standard unqualified audit opinion, more analyst coverage, and without CEO change is less likely to fall into financial distress; (2) incorporating non-financial indicators in the financial models improves the predictive performance in year T-1 and T-2, but does not work in year T-3; (3) financial indicators, ROE, cash recovery ratio, fixed asset ratio, dividend payout, and non-financial indicators, external audit opinion, and analyst rating are the most significant indicators with predictive power; (4) most indicators in foreign studies also work well in the Chinese market though the definitions of financial distress are different.