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The Effect on Financial Reporting Quality of an Exemption from the SEC Reporting Requirements for Foreign Private Issuers

42 Pages Posted: 1 Oct 2008 Last revised: 2 Jan 2011

Giorgio Gotti

University of Texas at El Paso (UTEP)

Stacy A. Mastrolia

Bucknell University - School of Management

Date Written: June 1, 2009

Abstract

We test for differences in financial reporting quality between companies that are required to file periodically with the SEC and those that are exempted from filing reports with the SEC under Rule 12g3-2(b). We examine three earnings quality measures: conservatism, abnormal accruals, and the predictability of earnings. Our results, for all three measures, show improved financial reporting quality for companies that file with the SEC than for those that are exempt from filing requirements; this difference in financial reporting quality can lead investors to question why the SEC allows the exemption (and is currently discussing expanding the exemption) when one of the primary goals of the SEC is the protection of US investors.

Suggested Citation

Gotti, Giorgio and Mastrolia, Stacy A., The Effect on Financial Reporting Quality of an Exemption from the SEC Reporting Requirements for Foreign Private Issuers (June 1, 2009). International Journal of Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1275924

Giorgio Gotti (Contact Author)

University of Texas at El Paso (UTEP) ( email )

500 West University Avenue
El Paso, TX 79968-0542
United States

Stacy A. Mastrolia

Bucknell University - School of Management ( email )

Lewisburg, PA 17837
United States

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