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Financial Ratios And The Prediction Of Bankruptcy: The Ohlson Model Applied To Chinese Publicly Traded Companies

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Executive Summary

This study re-examines the well-known Ohlson (1980) model on firm failure prediction. The data come from china publicly listed companies and cover a range of 11 years (1998-2008). The Ohlson (1980) model is re-estimated and then revised to better fit the specific situation of China publicly listed companies. The result shows that OENEG (1 if total liabilities exceeds total assets, 0 otherwise) and INTWO (1 if net income was negative for the last two years, 0 otherwise) are the two most influential variables in failure prediction and are significant at p<.01. This study contributes to the literature by expanding the application of Ohlson (1980) model to China publicly listed companies. It provides applicable measures for predicting firm delisting events in China stock markets.

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