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Listed companies' financial risk generation, conduction and economic effect Mechanism

Author: LinLin From: www.yourpaper.net Posted: 2009-05-01 11:34:20 Read:
[Abstract] uncertainty of the environment to the listed company to financial risk and extending outward through the chain of risk, risk consequences are to conduction or passed on to other companies and stakeholders, which may in turn lead to the entire stock market risk, if not handled properly, will have the risk of macro-and micro economic effects.

Listed companies are the most advantages for development groups in China's economic operation, is the source of capital market investment value. At present, our country is in economic transition process of ever-increasing degree of market economy, with the acceleration of the process of global economic integration, the listed companies in the development process will face more and more risks. Financial income and financial results of listed companies not achieve the desired objectives, namely that there is a financial risk. Various types of risk combined result from different sources of risk will eventually be reflected in the financial information on the financial risks can be seen as a concentrated expression of the company's risk and the ultimate manifestation. Listed company as a public company, has a high degree of sensitivity to the external environment, its financial risk than the average companies and enterprises with more complex and uncontrollable side, accumulation or deterioration not only have a significant threat to the company's own development, but also to the majority of investors a range of stakeholders, financial institutions, governments and other economic benefits. Recently, the domestic stock market has undergone a tremendous impact financial crisis, such as of Deron, 1139, Kelon, Aucma parties more aware of the importance of risk management in the development process of China's enterprises, especially listed companies sex. Generation, conduction and effector mechanisms from the listed companies' financial risk to start for analysis.

Listed companies' financial risk generation mechanism

The generation of the listed companies' financial risk related to many factors, sometimes with internal factors; sometimes may be affected by external factors; may sometimes
Only one or two factors; may sometimes be a comprehensive reflection of many factors. Which listed companies' financial activities in which the environmental changes of listed companies is the most difficult to accurately foresee and change, it changes with an adverse effect is bound to give the company a financial risk. Performance as:

(A) the uncertainty of the natural environment
Nature of some of the changes will not have a direct loss to the listed company's production and business activities, the production and business activities can not be carried out in accordance with normal procedures and methods, but its obvious constraints and impact. Such as SARS in early 2003 and the beginning of 2004, the global spread of avian influenza, caused varying degrees of tourist class, poultry farming, feed processing, meat processing and other listed companies profitability will be affected.

(B) the uncertainty of the political environment
Various political forces, the confrontation of political views as well as regional and ethnic conflicts can cause a change of government, riots, war, strikes, etc., which may in turn lead to the listed companies' financial risk.

(C) the uncertainty of the economic environment
Changes in the national economic environment, industrial structure, GDP growth conditions, fluctuations in the economic cycle, the accession to the WTO's commitments to be honored, the balance of payments and exchange rates, interest rates, inflation and many other aspects. Changes in these factors will lead to the uncertainty of the economic development, bound to have a significant impact on listed company financial condition, which is caused by listed companies' financial risk a major incentive.
Appreciation of the RMB since China announced since the exchange rate reform, the first trading day of 2007 new high of 7.8073 once again hit since the exchange reform. RMB appreciation will weaken China's export-oriented industries and listed companies (mainly in the textile, clothing, footwear, toys, furniture, household items, as well as mechanical and electrical, mechanical, these occupies an important share in the domestic market) export products in terms of price the advantages of international competitiveness will be greatly weakened. Since 2005, the industry and listed companies facing raw material prices, a shortage of labor cost pressures as well as international market increasingly competitive multi-extrusion. If you can not resolve this situation, it will undoubtedly lead to the listed companies in financial difficulties, poor funding situation.

Second, the listed companies' financial risk conduction mechanism

The factors that lead to financial income and financial results of listed companies not achieve the desired goal called risk factors. The risk of transmission mechanism intended to illustrate how the financial risk is conductive. Risk factors may exist between interaction, certain risk factors arising from the uncertainty of the uncertainty generated by the other risk factors may zoom in or out; Some risk factors may be affected by the role of other risk factors risk consequences. Various risk factors and risk consequences influence each other, layers of chain transfer will constitute different manifestations of risk. The risk chain can be seen as an inverse process of the value chain is damaged, the value decreasing. Listed companies unable to digest the risk factors and the consequences of risk control, it will be converted into the risk factors and the risk of chain extending outward from the inside, risk consequences then be conducted and passed on to other companies and stakeholders. Listed companies' financial risks can be transmitted to its parent company or its subsidiaries and affiliates can also transfer to another listed company by a listed company. Focus on the risk of outbreaks of listed companies' financial risk the consequences could lead to systemic risk of the securities market, or even cause the country's economic crisis. In short, the conduction process of the financial risk is the financial risk from small to big, from here, by a single listed company to the layers of the transfer process of the entire stock market, financial risks continued to enlarge the scope and intensity of the process.
As can be seen in Figure 1, the force of the financial risk can affect a lot of levels, the occurrence of any financial risk not simply as a single stand-alone event to view and handle, can not all simple rules by a a department or within a certain range to take action.


Listed companies' financial risk economic effects analysis

Financial risk or accumulation of a final negative impact of listed companies more quickly than the average business or company to the loss, bankruptcy. If the listed company's financial risk is not handled properly, is not timely, not only the development of the company suffered a major setback, may escalate quickly, the evolution of the stock market risk, triggering a financial crisis or economic crisis, political crisis, the consequences could be disastrous. Listed companies' financial risk economic effects can be divided into two aspects of the micro-economic effects and the macroeconomic effects, of course, these two aspects are interrelated and influence.

(A) listed companies' financial risk of micro-economic effects
Listed companies' financial risk significantly increases the cost of financing
The deterioration of the financial risk of the listed companies will inevitably lead to a deterioration of financing conditions for listed companies, such as financing rates, finance costs increased substantially. Exceptional circumstances, the listed companies and even harder to continue to receive financial support, resulting in production bankruptcy.
Listed companies' financial risk significantly increases transaction costs
Due to the existence of financial risk, adding to the workload and difficulty of the listed companies to collect, collate risk information, increasing the cost of the management of listed companies, but also increase the risk of decision-making; same time, the listed company's suppliers, customers, intermediaries and regulatory authorities in listed companies business dealings and policies enacted because of financial risk will increase transaction costs.
3 listed companies' financial risks manifest cause damage to the Group's value
Financial risk will result in the company's blood - "cash" financial resources inefficient or even waste, loss, affect the company's profitability and the quality of secondary market shares also fell, which will result in the shareholders of the Company loss of value. The the Wu Chaopeng, Shinong Wu (2005) study shows that listed companies in China, the annual economic value added (EVA) <0 or at the expense of shareholder value state proportion has increased nearly 3/4 of the company belongs to the end of 2003 the expense of shareholder value.
Listed companies' financial risk significant cause of stakeholders value of damage
When the listed companies in financial difficulties, the company's stakeholders, such as the interests of the creditors will be unable to timely and full repayment of debt and damage, the government of the revenue can not be guaranteed, employees facing a crisis of layoffs and salary, benefits the reduce, suppliers and clients' interests will also be greatly losses.
Listed companies' financial risk significantly affect the small and medium investors confidence and expectations
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