Shades of Gray: Internal Control Reporting by Chinese U.S.-listed Firms

49 Pages Posted: 19 Jun 2012 Last revised: 10 Jun 2018

See all articles by Raymond Reed Baker

Raymond Reed Baker

Tongji University - School of Economics & Management

Gary C. Biddle

University of Melbourne - Faculty of Business and Economics; Columbia University - Columbia Business School; London Business School; The University of Hong Kong; University of Melbourne

Michelle Lowry

The University of Hong Kong - Faculty of Business and Economics

Neale Gilbert O'Connor

Hong Kong Baptist University; National University of Singapore

Date Written: May 30, 2018

Abstract

Chinese firms listing in the U.S. via reverse mergers (CRMs) have dominated prior media, regulator and research attention. Yet CRMs have effectively ceased, leaving Chinese firms listing via initial public offerings (CIPOs) as the relevant remaining class of Chinese firms listing on U.S. exchanges. This study documents salient differences between CIPOs, CRMs and U.S.-domiciled U.S.-listed firms by examining Sarbanes-Oxley Act Section 302 and 404(b) ineffective internal control (IIC) and related disclosures that underlie financial reporting quality, with three main sets of findings. First, both CIPOs and CRMs are more likely to report IICs than U.S.-domiciled counterparts. Second, both CIPOs and CRMs are more likely to under-report IICs than U.S.-domiciled counterparts (CIPO for only 302 disclosures). Third, CIPOs are both less likely to report and less likely to under-report IICs than CRMs. These findings clarify and recast prior characterizations of the internal controls underlying the reporting quality of Chinese U.S.-listed firms.

Keywords: Sarbanes-Oxley Act; International Cross-Listing; China; Internal Controls; Chinese U.S.- listed Firms; Reverse Mergers

JEL Classification: G18, G34, G38, M41, M42, M48

Suggested Citation

Baker, Raymond Reed and Biddle, Gary C. and Lowry, Michelle and O'Connor, Neale Gilbert, Shades of Gray: Internal Control Reporting by Chinese U.S.-listed Firms (May 30, 2018). Available at SSRN: https://ssrn.com/abstract=2087535 or http://dx.doi.org/10.2139/ssrn.2087535

Raymond Reed Baker

Tongji University - School of Economics & Management ( email )

100 Wudong Road
Shanghai 200433
China

Gary C. Biddle (Contact Author)

University of Melbourne - Faculty of Business and Economics ( email )

Level 8, 198 Berkeley Street
Carlton, VIC 3010
Melbourne, Victoria 3010
Australia
61-3-8344-9807 (Phone)
61-3-9349-2397 (Fax)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

The University of Hong Kong ( email )

00000
Hong Kong

University of Melbourne ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia
383449807 (Phone)

HOME PAGE: http://https://findanexpert.unimelb.edu.au/display/person774767

Michelle Lowry

The University of Hong Kong - Faculty of Business and Economics ( email )

Hong Kong

Neale Gilbert O'Connor

Hong Kong Baptist University ( email )

Kowloon Tong, Kowloon
Hong Kong
93045964 (Phone)

National University of Singapore ( email )

1 Business Link
Singapore, 117592
Singapore
65 6601 2993 (Phone)

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