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The Impact of State Ownership on Timeliness in Loss Recognition
Liang (Richard) Chen, University of New South Wales Asia
Patricia M.S. Tan, Nanyang Technological University
ABSTRACT. This study exploits the unique setting in China to investigate how reported accounting numbers are shaped by the ownership structure, and reporting and legal environments of the region. We focus on financial reporting incentives related to timeliness in loss recognition (TLR). Our results show that state-owned firms are less timely in recognizing losses (relative to gain recognition) than non-state-owned firms. However, the negative impact of state ownership on TLR is mitigated by strong enforcement mechanisms. When cross-listed into a more demanding market or located in regions with stringent legal environment, there is no significant difference in TLR between state and non-state-owned firms. If listed only in domestic markets or situated in regions with poor legal environment, the state-owned firms continue to be slower in recognizing losses than non-state-owned firms.
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