Research On The Influence Of Social Trust On Corporate Losses Reversal

China’s economy has shifted from a high-speed growth stage to a high-quality development stage,and a healthy capital market is a booster for high-quality economic development.Listed companies are the cornerstone of capital market development.Improving the quality of listed companies is the key to sustainable development of the capital market.Due to the increasingly complex operating environment and increasingly fierce market competition,the number of loss-making listed companies and the amount of losses have both increased,and even some high-quality listed companies have fallen into financial difficulties.Aiming at the loss of listed companies,scholars have carried out research on the value of loss-making companies and approaches of loss reversal,and have achieved certain results.According to China’s delisting institutions,three consecutive years of losses will be compulsorily delisted.Therefore,studying loss-making listed companies has important theoretical and practical significance for the future development of the company and the high-quality development of the capital market.In recent years,the role of social trust in economic activities has become more and more important,and has aroused widespread concern in the academic community.This has also provided a new perspective for the study of loss-making listed companies.Social trust,as a typical informal institutions,is a lubricant for economic transactions(Arrow,1974).It can affect not only macroeconomic development,but also microscopic corporate behavior.In fact,social trust will give members in the social network a trustworthy social seal,and by providing stable psychological expectations for transaction subjects(Williamson,1975),the signing and execution of contracts will be guaranteed,and social trust will also bring cascading effect,betrayal of trust can lead to huge reputational losses and high penalty costs.It is precisely because social trust has a social seal effect and cascading effect,corporates in social networks can not only receive positive support for trust,but also be restricted and supervised by trust.For loss-making listed companies,social trust can affect their losses reversal performance from three aspects.First,trust can reduce the information asymmetry degree,reduce transaction costs,and make transactions easier to achieve,which is beneficial for loss-making companies to maintain business relationships and gain business resources,open up new markets,and improve losses reversal performance.The second is that the generally trusted environment makes people tend to cooperate,loss-making companies can get more funding support and more lenient credit policy from stakeholders such as shareholders,creditors and business partners,to alleviate financing constraints,thereby improving losses reversal performance.Third,trust can constrain managers’ self-interest behaviors,prompting managers to maximize their personal effectiveness in order to improve company performance,alleviate agency problems,and improve losses reversal performance.This article takes the trust mechanism as the starting point,based on the empirical data of A-share loss-listed companies in Shanghai and Shenzhen in 2008-2017,and studies the impact of social trust on corporate losses reversal performance,as well as the difference of the impact under different marketization degree and executive compensation incentives level.The research finds that social trust has a significant positive impact on the company’s turnaround performance.The higher the level of regional trust,the higher the corporate losses reversal performance.Second,under the general trust environment,companies can sign contracts and implementation to improve the effectiveness of executive compensation incentives,and promote the efforts of executives to improve loss-making performance.Therefore,the higher the level of executive compensation incentives,the more significant the positive impact of social trust on the corporate losses reversal performance.Third,the higher the degree of marketization in regions where market mechanisms are more complete and law enforcement is more effective,formal and informal institutions have doubled “supervision” on companies,thereby improving losses reversal performance.Therefore,the higher the degree of regional marketization,the more significant the positive impact of social trust on corporate losses reversal performance.Fourth,after the transmission path test,it is found that the degree of information asymmetry is the main transmission path for social trust to affect the company’s losses reversal performance,that is,social trust mainly improves the losses reversal performance by reducing the degree of information asymmetry.This paper explores the role of trust mechanism in the process of corporate losses reversal,and conducts heterogeneity analysis from the perspective of marketization degree and executive compensation incentives,enriching the relevant literature on social trust research and losses reversal performance research.At the same time,this article also puts forward relevant suggestions to promote the establishment of informal institutions such as social trust and improve the losses reversal performance of loss-making listed companies,thereby promoting the sustainable development of China’s capital market and high-quality economic development.