The Impact of Eliminating the 20-F Reconciliation on the Cost of Debt: An Exploratory Study

Journal of International Accounting Research Forthcoming

Posted: 7 Feb 2019

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: January 24, 2019

Abstract

In 2007, the U.S. Securities and Exchange Commission voted to eliminate the 20F reconciliation requirement for foreign issuers listing their stocks or bonds in the U.S. capital markets and preparing their financial statements under International Financial Reporting Standards (IFRS). Distinct from prior research focusing on the equity market, we investigate the impact of eliminating the 20-F reconciliation on the cost of debt in the U.S. listed foreign bond market. Employing a difference-in-differences approach, we document that bond yield spread increases for foreign IFRS bond issuers after the elimination of 20-F reconciliation. The results suggest that bondholders, on average, view the elimination of 20-F reconciliation as an information loss. Cross-sectional analyses reveal that the positive association between the elimination of 20-F reconciliation and bond yield spread is more pronounced for firms with greater stock return volatility, lower institutional ownership, weaker reporting incentives, and higher country-level investor protection.

Keywords: 20-F reconciliation; cost of debt; U.S. cross listing; IFRS; U.S. GAAP

JEL Classification: M41; G15; G18

Suggested Citation

Chen, Lucy Huajing and Deng, Saiying and Gupta, Parveen P. and Sami, Heibatollah, The Impact of Eliminating the 20-F Reconciliation on the Cost of Debt: An Exploratory Study (January 24, 2019). Journal of International Accounting Research Forthcoming, Available at SSRN: https://ssrn.com/abstract=3321900

Lucy Huajing Chen (Contact Author)

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

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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