Earnings Management and Stock Price Crashes: The Deteriorating Information Environment Post Cross-Delisting
40 Pages Posted: 12 Dec 2019
Date Written: November 21, 2019
We test whether cross-delisted firms from the major U.S. stock exchanges experience an increase in crash risk associated with earnings management. Consistent with our prediction, we find that earnings management have a greater positive impact on stock price crash risk post-cross-delisting when compared to a control group of firms that remain cross-listed. Moreover, our results suggest that this effect is more pronounced for cross-delisted firms from countries with weaker investor protection and poorer quality of their information environment. Our findings are robust to alternative measures of earnings management, stock price crashes and information environment. We interpret our results as evidence of a “reverse bonding effect” following cross-delistings from U.S. stock exchanges.
Keywords: Cross-Delisting, U.S. Stock Exchange, Stock Price Crash Risk, Accruals Earnings Management, Real Earnings Management, Information Asymmetry, Bonding Hypothesis, Corporate Governance, Investor Protection, Information Environment
JEL Classification: F30, F31, G15, G30
Suggested Citation: Suggested Citation