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http://ssrn.com/abstract=1028620
 
 

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SOX-Mandated Internal Control Deficiency Disclosure under Section 302 and Earnings Quality: Evidence from Cross-Listed Firms


Guojin Gong


Penn State University - Smeal College of Business

Bin Ke


Nanyang Technological University

Yong Yu


University of Texas at Austin

March 3, 2009


Abstract:     
We examine the usefulness of SOX-mandated internal control deficiency (ICD) disclosure under Section 302 in assessing earnings quality for cross-listed firms relative to U.S. firms. Consistent with prior research, we find that U.S. firms' Section 302 ICD disclosure conveys useful information about earnings quality. However, cross-listed firms' Section 302 ICD disclosure is on average unrelated to earnings quality and significantly less informative about earnings quality than U.S. firms'. We provide evidence that the reduced usefulness of cross-listed firms' ICD disclosure is due to management's weaker incentive to detect and report existing ICDs. Specifically, the weaker association between the ICD disclosure and earnings quality for cross-listed firms relative to U.S. firms is primarily driven by cross-listed firms domiciled in weak investor protection countries. In addition, cross-listed firms' propensity to disclose ICDs declines with the degree of management's private control benefits and this effect is stronger for firms domiciled in weak investor protection countries.

Number of Pages in PDF File: 63

Keywords: Cross listing, Internal control, Sarbanes-Oxley, Disclosure

JEL Classification: G34, G38, K22, M41, M45, M47

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Date posted: November 14, 2007 ; Last revised: March 16, 2009

Suggested Citation

Gong, Guojin and Ke, Bin and Yu, Yong, SOX-Mandated Internal Control Deficiency Disclosure under Section 302 and Earnings Quality: Evidence from Cross-Listed Firms (March 3, 2009). Available at SSRN: http://ssrn.com/abstract=1028620 or http://dx.doi.org/10.2139/ssrn.1028620

Contact Information

Guojin Gong
Penn State University - Smeal College of Business ( email )
University Park, PA 16802
United States
814-863-7055 (Phone)
Bin Ke (Contact Author)
Nanyang Technological University ( email )
S3-01B-39, 50 Nanyang Avenue
Singapore, 639798
Singapore
+6567904832 (Phone)
+6567913697 (Fax)
HOME PAGE: http://www.ntu.edu.sg/home/KEBIN/
Yong Yu
University of Texas at Austin ( email )
1 University Station B6400
Austin, TX 78712
United States
(512)471-6714 (Phone)
(512)471-3904 (Fax)
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