Earnings Management and Stock Price Crashes: The Deteriorating Information Environment Post Cross-Delisting

40 Pages Posted: 12 Dec 2019

See all articles by Gilberto R. Loureiro

Gilberto R. Loureiro

University of Minho - School of Economics and Management

Sónia Silva

University of Minho - School of Economics and Management

Date Written: November 21, 2019

Abstract

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

Loureiro, Gilberto R. and Silva, Sónia, Earnings Management and Stock Price Crashes: The Deteriorating Information Environment Post Cross-Delisting (November 21, 2019). Available at SSRN: https://ssrn.com/abstract=3492784 or http://dx.doi.org/10.2139/ssrn.3492784

Gilberto R. Loureiro (Contact Author)

University of Minho - School of Economics and Management ( email )

Campus Gualtar
Braga, 4710-057
Portugal
+351-253-605553 (Phone)
+351-253-601380 (Fax)

Sónia Silva

University of Minho - School of Economics and Management ( email )

Campus de Gualtar
Braga, 4710
Portugal

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