Corporate Governance, Loss Avoidance and Earnings Asymmetry in Chinese Listed Firms

다국어 초록 (Multilingual Abstract)

The purpose of this study is to investigate the effects of corporate governance and manager’s loss avoidance on earnings asymmetry in China. It is based on the cost asymmetry by Anderson, Banker, & Janakiraman. The influence of the corporate governance in Chinese listed firms may be different from that under the capitalist market economy system. For this study, we analyzed non-financial 11,431 firm-years data listed in main board A of Shanghai and Shenzhen Stock Exchange in China from 2017 to 2024. Data were collected from the China Stock Market Accounting Research (CSMAR) database. The results of identifying the existence of earnings asymmetry based on sales change are summarized as follows. First, in the case of sales decrease, it is confirmed that there is earning asymmetry in net and operating income due to the decrease in sales. Second, The results on the relationship between manager’s loss avoidance incentives and asymmetrical earnings behavior show that it is confirmed that if sales are decreased, there is earnings asymmetry in the net and operating income due to the sales decrease. In addition, in the case of companies with loss avoidance incentives, it is found that the earnings asymmetry is significantly mitigated. Finally, the relationship between the corporate governance and asymmetrical earnings behavior showed that the higher the ratio of the state-owned stocks, the more the earning’s asymmetry is alleviated. The findings suggest that for external investors(or financial analysts) to predict the future earnings or performance in chinese listed firms, they must simultaneously consider not only asymmetric cost behavior resulting from agency and resource adjustment costs, but also corporate governance and manager’s loss avoidance incentives.