Comparing the Financial Reporting Quality of Chinese and U.S. Public Firms

Brown, K., Elayan, F.A., Li, J. and Liu, Z. (2018) "Comparing the financial reporting quality of Chinese and US public firms", China Finance Review International, DOI/10.1108/CFRI-02-2017-0010

43 Pages Posted: 28 Aug 2018

See all articles by Kareen Brown

Kareen Brown

Brock University

Fayez A. Elayan

Brock University-Goodman School of Business

Jennifer Li

Brock University

Zhefeng Frank Liu

Brock University

Date Written: December 28, 2017

Abstract

This paper investigates whether U.S. regulatory actions around reverse mergers have exerted any spillover effects on the Chinese firms listed in China and whether Chinese firms have exhibited lower financial reporting quality than their U.S. counterparts. To test the possible spillover effect, this paper calculates three-day cumulative average abnormal returns (CAAR) and the aggregate CAAR for a series of U.S. regulatory actions in 2010 and 2011. The study then compares the accrual quality, conditional conservatism, and information content of accruals of Chinese firms and U.S. firms. The paper documents a spillover effect of U.S. actions against reverse mergers on Chinese stocks listed in China. Overall results do not support the perception that Chinese firms have lower financial reporting quality than their U.S. counterparts. While this study provides evidence consistent with investors perceiving poor financial reporting quality among Chinese firms, that perception is not justified by empirical evidence. This study provides a comparison of the financial reporting quality between Chinese and U.S. firms to help global investors assess information risk for optimal resource allocation.

Keywords: Chinese Reverse Mergers, Chinese Listed Firms, Spillover Effects, Financial Reporting Quality, Accounting Fraud

JEL Classification: M41, M48, N25, G14, G18

Suggested Citation

Brown, Kareen and Elayan, Fayez A. and Li, Jingyu and Liu, Zhefeng Frank, Comparing the Financial Reporting Quality of Chinese and U.S. Public Firms (December 28, 2017). Brown, K., Elayan, F.A., Li, J. and Liu, Z. (2018) "Comparing the financial reporting quality of Chinese and US public firms", China Finance Review International, DOI/10.1108/CFRI-02-2017-0010, Available at SSRN: https://ssrn.com/abstract=3233867

Kareen Brown

Brock University ( email )

500 Glenridge Avenue
St. Catherines, Ontario L2S 3A1
Canada

Fayez A. Elayan

Brock University-Goodman School of Business ( email )

1812 Sir Issac Brock Way
St. Catharines, Ontario L2S 3A1
Canada
905-688-5550 (Phone)
905-688-9779 (Fax)

HOME PAGE: http://www.brocku.ca

Jingyu Li

Brock University ( email )

500 Glenridge Avenue
St. Catherines, Ontario L2S 3A1
Canada

Zhefeng Frank Liu (Contact Author)

Brock University ( email )

st catharines, Ontario
Canada
(905)688-5550 ext 5834 (Phone)

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