Evaluation on financial risk and abnormal return: evidence from China’s listed companies

Abstract

From 1998, China’s stock exchanges had classified listed companies as “Special Treatment” (ST) companies when these companies were involved in financial distress for the defined period. Principally, this study investigate that volatility the cumulative abnormal returns (CAR) before ST event, and interpret what factors will affect CAR. Using logistic regression constructs a financial distress prediction model to acquire distress probability. Furthermore, this paper explores pre-disclosure information (PDI) in advanced CAR regression model instead of traditional financial indexes. The main results indicate that the most obvious observation date of firms’ CAR is from pre 20 days relative to ST event, and both distress probability and proxy indicator for PDI are signifying in the model.

Keywords and phrases:

• Financial distress
• special treatment
• cumulative abnormal return
• predisclosure information