Earnings Management and Cross Listing: Are Reconciled Earnings Comparable to Us Earnings?

39 Pages Posted: 3 Mar 2004

See all articles by Mark H. Lang

Mark H. Lang

University of North Carolina at Chapel Hill

Jana Smith Raedy

University of North Carolina at Chapel Hill

Wendy M. Wilson

Texas Christian University - Department of Accounting; Southern Methodist University (SMU) - Accounting Department

Multiple version iconThere are 2 versions of this paper

Date Written: October 2005

Abstract

We compare the characteristics of US GAAP earnings for US firms with reconciled earnings for non-US firms cross listing on US markets. We find that the reconciled earnings for non-US firms differ systematically from US GAAP earnings for US firms, and are characterized by more evidence of smoothing, a greater tendency to manage earnings towards a target, a lower association with share price and less timely recognition of losses. Further, splitting by country of domicile, earnings for firms from countries with relatively weak local investor protection environments show more evidence of earnings management, suggesting that institutional features of the local environment find their way into US GAAP-reported earnings. Our evidence suggests that, even though cross-listed firms operate under the regulatory authority of the SEC and follow nominally similar accounting standards, their reconciled accounting data show more evidence of earnings management than data prepared by US firms.

Keywords: cross listing, ADR, international accounting, bonding

JEL Classification: F30, G15, M41, M43, M47

Suggested Citation

Lang, Mark H. and Smith Raedy, Jana and Wilson, Wendy M., Earnings Management and Cross Listing: Are Reconciled Earnings Comparable to Us Earnings? (October 2005). Available at SSRN: https://ssrn.com/abstract=511842 or http://dx.doi.org/10.2139/ssrn.511842

Mark H. Lang (Contact Author)

University of North Carolina at Chapel Hill ( email )

Kenan-Flagler Business School
McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-1644 (Phone)
919-962-4727 (Fax)

Jana Smith Raedy

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-7475 (Phone)
919-962-4727 (Fax)

Wendy M. Wilson

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States

Southern Methodist University (SMU) - Accounting Department ( email )

United States

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