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Cross Listing, Bonding and Firms' Reporting Incentives: A Discussion of Lang, Raedy and Wilson (JAE 2006)

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network

August 2005

Lang, Raedy and Wilson (2006) examine the properties of U.S. GAAP accounting numbers provided by cross-listed firms and compare them to those of U.S. firms. Using a wide range of properties related to earnings management, timely loss recognition, and value relevance, LRW show that accounting data are not comparable across cross listed and U.S. firms, despite the fact that all firms use the same accounting standards. In this paper, I discuss how these findings advance the literature and what they imply for the effectiveness of cross listing as a bonding mechanism. My discussion highlights that the documented reporting differences cannot be solely attributed to weak U.S. legal and SEC enforcement. I emphasize that accounting standards provide discretion and that cross-listed firms are likely to have different incentives than U.S. firms to use this discretion. To illustrate, I document that cross listed and U.S. firms differ with respect to their ownership concentration and that these differences are associated with differences in earnings management. Consistent with the authors' findings, I also provide evidence that home-country institutions continue to influence cross-listed firms' reporting behavior.

Number of Pages in PDF File: 27

Keywords: Cross listing, Earnings quality, Enforcement, Ownership structure, Bonding, US GAAP, Reconciliation

JEL Classification: G15, G30, G32, G38, K22, M41, M43, M44, M47

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Date posted: September 15, 2005  

Suggested Citation

Leuz, Christian, Cross Listing, Bonding and Firms' Reporting Incentives: A Discussion of Lang, Raedy and Wilson (JAE 2006) (August 2005). Available at SSRN: http://ssrn.com/abstract=800304 or http://dx.doi.org/10.2139/ssrn.800304

Contact Information

Christian Leuz (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1996 (Phone)
HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
HOME PAGE: http://www.nber.org
European Corporate Governance Institute (ECGI)
HOME PAGE: http://www.ecgi.org
Center for Financial Studies (CFS) ( email )
Grüneburgplatz 1
Frankfurt am Main, 60323
University of Pennsylvania - Wharton Financial Institutions Center
3641 Locust Walk
Philadelphia, PA 19104-6218
United States
CESifo Research Network
Poschinger Str. 5
Munich, DE-81679
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References:  38
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