Earnings Management and Stock Price Crashes Post U.S. Cross-Delistings

50 Pages Posted: 12 Dec 2019 Last revised: 31 May 2022

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: March 5, 2021

Abstract

We examine 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 has a greater positive impact on stock price crash risk post cross-delisting when compared to a control group of firms that remain cross-listed. More importantly, we find that this effect is more pronounced for cross-delisted firms from countries with weaker investor protection, poorer quality of their information environment and less conservative accounting practices. Our findings are robust to the potential endogenous nature of the cross-delisting decision, alternative measures of stock price crash risk and information asymmetry. 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, Earnings Conservatism

JEL Classification: F30, F31, G15, G30

Suggested Citation

Loureiro, Gilberto R. and Silva, Sónia, Earnings Management and Stock Price Crashes Post U.S. Cross-Delistings (March 5, 2021). International Review of Financial Analysis, 2022, 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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