Cross Listing, Bonding and Firms' Reporting Incentives: A Discussion
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
Journal of Accounting and Economics, Vol. 42, No. 1-2, 2006
Lang, Raedy and Wilson (JAE 2006) compare the properties of U.S. GAAP accounting numbers across cross-listed and U.S. firms. Using a wide range of properties, LRW show that accounting data are not comparable, even though sample firms use the same accounting standards. 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 documented differences cannot be solely attributed to weak U.S. legal enforcement. I emphasize that accounting standards provide discretion and that cross-listed and U.S. firms are likely to have differential incentives to use this discretion. To illustrate, I document that cross-listed and U.S. firms differ in ownership concentration and that these differences are associated with the level of earnings management. I also provide evidence that home-country institutions continue to influence cross-listed firms' reporting behavior.
Keywords: Cross listing, Earnings quality, Enforcement, Ownership structure, Bonding, US GAAP, Reconciliation
JEL Classification: G15, G32, K22, M41, M43, M44
Date posted: June 30, 2006
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