DOI: 10.3390/fi18110590 ISSN: 1999-5903

Ex Ante by Design: Leakage-Controlled Early Warning of Corporate Financial Distress Under China’s Special Treatment Regime

Xinfeng Dou, Xuexin Huang

Early warning of corporate financial distress matters to creditors, investors, and regulators, and automated monitoring systems re-score listed firms after every disclosure. Under China’s Special Treatment (ST) regime, most designations are announced with the annual report that conventional one-year (k → k + 1) designs use as input, so part of their accuracy comes from information released with the outcome. We therefore build the timing constraint into the label: year-k statements predict a firm’s first ST or *ST (delisting-risk warning) designation in year k + 2, eligibility uses only information available at scoring, and we audit the remaining leakage channels. Using 13,702 A-share firm-years (2019–2023), we make three contributions. First, on the primary cohort (k = 2023), whose model and thresholds were selectable at scoring, a random forest reaches an area under the receiver operating characteristic curve (AUC) of 0.856 (95% CI [0.811, 0.899]), and tuned logistic regression and gradient boosting perform similarly. Second, frozen validation-year thresholds (2%, 4%, 15%) produce four review tiers whose ST rates rise monotonically, from 0.63% to 33.33% on the primary cohort (pooled: 0.76–25.88%); at equal review capacity, one profitability ratio finds almost as many events, so the tiers add a probability scale, not a better ranking. Third, every score carries archived row-level SHapley Additive exPlanations (SHAP) contributions and a replayable tier assignment.

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