Earnings Conservatism, Litigation and Contracting: The Case of Cross-Listed Firms

17 Pages Posted: 27 Mar 2006

See all articles by Carel Huijgen

Carel Huijgen

University of Groningen - Faculty of Economics and Business

Martien Jan Peter Lubberink

Victoria University of Wellington - School of Accounting and Commercial Law

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Abstract

We compare earnings conservatism of UK companies cross-listed in the US to that of UK companies without a US-listing. We expect that conservatism will be more pronounced for cross-listed firms than for firms with a UK listing only, because the cross-listed firms face a stricter enforcement regime. Furthermore, cross-listed firms may use a listing on a US exchange to signal high-quality reporting to investors. Using a matched-pairs research design, we find that earnings of UK cross-listed firms are significantly more conservative than earnings of UK firms without a US listing. Moreover, cross listed firms display particularly high levels of conservatism during the early years of their cross-listing. This indicates that firms use earnings conservatism to commit to highly demanding reporting requirements and in doing so communicate a perception of investor care.

Suggested Citation

Huijgen, Carel A. and Lubberink, Martien Jan Peter, Earnings Conservatism, Litigation and Contracting: The Case of Cross-Listed Firms. Journal of Business Finance & Accounting, Vol. 32, No. 7-8, pp. 1275-1309, September 2005, Available at SSRN: https://ssrn.com/abstract=877424 or http://dx.doi.org/10.1111/j.0306-686X.2005.00629.x

Carel A. Huijgen (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands
+3150 363 7206 (Phone)

Martien Jan Peter Lubberink

Victoria University of Wellington - School of Accounting and Commercial Law ( email )

New Zealand
+64 4 463 5968 (Phone)

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