The Analysis of the Enterprises' Long-Term Investment on Financial Distress

• Main Authors: Jo-Lan Hsia, 夏若蘭
• Other Authors: Jau-Ling Tseng
• Format: Others
• Language: zh-TW
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/15910312312077867063

碩士 === 世新大學 === 經濟學研究所(含碩專班) === 94 === Since April 2004, a number of enterprises, including Pacific Electric Wire and Cable Co., Procomp Informatics Co., Summit Computer Technology Co., Phoenixtec Engineering Co., etc., have faced serious financial distress, which as a result, dampened investor confidence, caused disputes over the operational integrity and strategy of enterprises, and significantly affected all industries. The issue of financial distress of enterprises has long been a focal point of the government agencies, financial institutions, private enterprises and investors. The financial distress of enterprises is caused by many reasons, including economically inefficient or excessive long-term investment, causing many companies to determinate and have financial distress, poor long-term investment, and the uncertainty of long-term investment and difficulty in investment management, causing a few number of companies to make profits from long-term investment by randomly investing in unfamiliar industries and therefore exhaust their working capital. There are many previous studies on financial distress of enterprises, but none of them have closely examined the effects of long-term investment on financial distress prediction models. Theoretically, the amount of long-term investment, the familiarity with the industry investment, and the ratio of shares are critical to enterprise business performance. Therefore, this study incorporated the long-term investment factor as an indicator of predicting distressed companies and the two variables of corporate governance and banking relationship into the prediction model to examine whether these variables affect financial distress of enterprises. The samples of this study were 31 TSEC-delisted companies from 2001 to 2005, each of those paired with 3 normal companies. The empirical results of this study are summarized as follows: 1、Compared to the other selected variables, the total debt to equity, the turnover of total assets, and the ratio of long-term investment stocks and non-related industry to total assets significantly explain the causes of distress. 2、The results suggest that using a single financial ratio or long-term investment and a non-financial ratio does not predict financial distress well, while the Logistic Model incorporated with non-financial factors, such as long-term investment, shows a good prediction before enterprises’ financial distress occurs.