Accounting Quality, Earnings Management and Cross-Listings: Evidence from China

Accounting Quality, Earnings Management and Cross-Listings: Evidence from China This paper examines the quality of financial reporting of Chinese firms cross-listed in the United States, Hong Kong and noncross-listed Chinese firms. We examine quality of financial reporting based on measures of earnings management, timely loss recognition and price-earnings association. We find that both cross-listings and noncross-listings show significant earnings smoothing and use accruals to manage earnings, and are not timely in loss recognition. We surmise that cross-listing in the United States or Hong Kong has not changed the accounting choices of Chinese cross-listing firms. However, our findings show that the market considers earnings and book value data of cross-listing firms to be more informative than those of noncross-listing firms in the event of good news. Our contribution is to show that in contrast to previous literature, firms from China do not have better reporting quality when they cross-list in the United States. There are still significant accounting deficiencies in many Chinese firms cross-listed in the United States (Financial Times, 2011). http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Pacific Basin Financial Markets and Policies World Scientific Publishing Company

Accounting Quality, Earnings Management and Cross-Listings: Evidence from China

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Publisher
World Scientific Publishing Company
Copyright
Copyright ©
ISSN
0219-0915
eISSN
1793-6705
D.O.I.
10.1142/S0219091512500099
Publisher site
See Article on Publisher Site

Abstract

This paper examines the quality of financial reporting of Chinese firms cross-listed in the United States, Hong Kong and noncross-listed Chinese firms. We examine quality of financial reporting based on measures of earnings management, timely loss recognition and price-earnings association. We find that both cross-listings and noncross-listings show significant earnings smoothing and use accruals to manage earnings, and are not timely in loss recognition. We surmise that cross-listing in the United States or Hong Kong has not changed the accounting choices of Chinese cross-listing firms. However, our findings show that the market considers earnings and book value data of cross-listing firms to be more informative than those of noncross-listing firms in the event of good news. Our contribution is to show that in contrast to previous literature, firms from China do not have better reporting quality when they cross-list in the United States. There are still significant accounting deficiencies in many Chinese firms cross-listed in the United States (Financial Times, 2011).

Journal

Review of Pacific Basin Financial Markets and PoliciesWorld Scientific Publishing Company

Published: Jun 1, 2012

Keywords: Cross-listings accounting quality earnings management earnings smoothing China

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