Study On The Economic Consequences Of Different Loss Reversal Strategy Of Listed Companies

Since the World Financial Crisis in 2008,the business performance of Chinese listed companies is not promising.Due to the reasons of the world economic downturn,Chinese economic growth slowdown and the increased competition between enterprises,the number of loss listed companies increases year after year.Therefore,listed companies need to take a variety of measures to reverse the loss under the delisting pressure.The loss reversal strategies which loss companies usually undertake are improving management and administration,strengthening internal management,reorganization,disposal of idle assets and looking for help from the government.Therefore,it is worthwhile to study the consequences of different loss reversal strategies.The thesis studies the impact of loss reversal strategies with different persistence on the market reaction and the future performance of the company.The purpose of this study is to provide a reference for the loss companies,to facilitate investors and regulators to identify the role of different turnover strategies,to provide investors with the basis for decision-making,and to promote regulatory authorities to enhance the supervision of the company as well.This thesis consists of theoretical analysis and empirical analysis.In theoretical analysis,several topics have been discussed,which include concepts of loss reversal strategies and economic consequences,expounding the theoretical basis of resource dependence theory,and analyzing the impact of different loss reversal strategies on the market reaction and the future performance of companies from the perspective of earnings persistence.Secondly,the empirical analysis examines the status of loss reversal strategies which are used by loss-making listed companies.Through the analysis of 367 companies which published performance pre-announcement with the type of “loss reversal” between 2011 and 2013,this study finds that companies tend to adopt a variety of loss reversal strategies in the short term to increase profit and to avoid losses.This thesis uses the mean value test and multi-linear regression to test the difference between different loss reversal strategies about the market reaction and the future performance.The thesis indicates: 1)The market reaction of listed companies using only sustainable loss reversal strategies is significantly better than that using unsustainable loss reversal strategies in a short period of disclosure of performance pre-announcement.The market reaction to performance pre-announcement with sustainable loss reversal strategies is significantly positive.2)The next year's performance of turnover of listed companies using only sustainable loss reversal strategies is significantly better than that using unsustainable loss reversal strategies and the sustainable loss reversal strategies has a strong positive impact on next year's performance of turnover companies.3)There is no significant difference in market reaction and future performance of the companies between using two types of loss reversal strategies and only using unsustainable strategies,which means sustainable loss reversal strategies play limited roles such as sales improvement,internal management.That is because the management usually has self-interest tendencies when they disclose the reasons for the improvement.Based on the results,this thesis suggests that investors should pay attention to whether the companies are achieving loss reversal and enhance the persistence analysis of loss reversal strategies at the same time.Furthermore,supervision institution should issue relevant provisions in order to regulate the veracity of reasons of performance changes disclosed by listed companies,and adopt penalties for companies that have not been disclosed authentically.