Abstract
While conventional wisdom has stated that greater risks typically bring greater rewards, many studies have shown that this is not generally true for the financial state of firms. This paradox, known as Bowman’s paradox has motivated studies to examine this relationship across different industries, periods, and nations. However, most of these studies have focused on Western countries such as Belgium and the United States of America. Therefore, this paper contributes to the literature by investigating the generalizability of Bowman’s paradox and prospect theory across three distinct Eastern countries. Data is collected from 10,623 firms located in China, Japan, and Vietnam. Cross- sectional and longitudinal associations between risk and return provided general support for Bowman’s paradox and prospect theory for the three Eastern countries. The results indicate that there is a general negative risk-return relationship for firms in these countries. Further analyses show that this relationship is stronger for firms performing below the industry median. This might suggest that firms that are in trouble usually take more risks. This relationship is strongest for firms in Japan, followed by firms in China and Vietnam, respectively.