The SEC's Elimination of 20-F Reconciliation and Information Asymmetry

Journal of Contemporary Accounting and Economics, Forthcoming

Posted: 1 Dec 2014

See all articles by Lucy Huajing Chen

Lucy Huajing Chen

Villanova University

Saiying Deng

Kent State University

Parveen P. Gupta

Lehigh University - Department of Accounting

Heibatollah Sami

Lehigh University

Date Written: November 30, 2014

Abstract

The U.S. SEC adopted a rule in December 2007 to eliminate the 20-F reconciliation requirement for foreign private issuers preparing financial statements under IFRS as issued by the IASB. In this paper we examine whether eliminating the reconciliation is associated with information asymmetry for such foreign issuers during the 2005-2008 sample period. We find that information asymmetry decreases after such firms discontinue the 20-F reconciliation. Moreover, information asymmetry reduction is more pronounced for firms with higher reconciliation constraint proxied by higher pre-rule disclosure incentive and for firms with higher cost savings proxied by more reductions in audit fees in the post-rule period. We also document that foreign IFRS firms change accounting policies more frequently than foreign non-IFRS firms after the relaxation of the reconciliation constraint. Together, these findings provide empirical evidence supporting the SEC’s decision to eliminate the 20-F reconciliation.

Keywords: Eliminating the reconciliation; IFRS; information asymmetry

JEL Classification: M41, G15, G18

Suggested Citation

Chen, Lucy Huajing and Deng, Saiying and Gupta, Parveen P. and Sami, Heibatollah, The SEC's Elimination of 20-F Reconciliation and Information Asymmetry (November 30, 2014). Journal of Contemporary Accounting and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2532214

Lucy Huajing Chen

Villanova University ( email )

United States
610-519-6321 (Phone)

Saiying Deng

Kent State University ( email )

College of Business Administration
P.O. Box 5190
Kent, OH 44242-0001
United States
3306721213 (Phone)

Parveen P. Gupta (Contact Author)

Lehigh University - Department of Accounting ( email )

621 Taylor Street
RBC #37
Bethlehem, PA 18015
United States
610-758-3443 (Phone)
610-758-5992 (Fax)

HOME PAGE: http://www.lehigh.edu

Heibatollah Sami

Lehigh University ( email )

Bethlehem, PA 18015
United States
610-758-3407 (Phone)

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