An Economic Analysis of Cross-Listing Decisions and Their Impact on Earnings Quality

Abstract:     
I examine the conditions under which entrepreneurs signal the high quality of their projects by cross-listing their firms in a jurisdiction with stricter enforcement of financial reporting regulation. I analyze the effect of these cross-listing decisions on international earnings quality, using a model of earnings management and financial reporting enforcement in which stricter enforcement makes accounting manipulation more costly. The analysis shows that firms can use cross-listing decisions to signal high quality projects even in the absence of listing costs. Cross-listing to a jurisdiction with stricter enforcement sometimes actually increases earnings management and generally leads to less earnings management among firms remaining in the domestic market.

Number of Pages in PDF File: 21

Keywords: Analytical Accounting, Cross-Listing, Earnings Management, Earnings Quality, Enforcement

JEL Classification: G18, M48

Accepted Paper Series