How Representative Are Firms That Are Cross-Listed in the United States? An Analysis of Accounting Quality

We provide evidence on the characteristics of local generally accepted accounting principles (GAAP) earnings for firms cross-listing on U.S. exchanges relative to a matched sample of foreign firms currently not cross-listing in the United States to investigate whether U.S. listing is associated with differences in accounting data reported in local markets. We find that cross-listed firms differ in terms of the time-series properties of earnings and accruals, and the degree of association between accounting data and share prices. Cross-listed firms appear to be less aggressive in terms of earnings management and report accounting data that are more conservative, take account of bad news in a more timely manner, and are more strongly associated with share price. Furthermore, the differences appear to result partially from changes around cross-listing and partially from differences in accounting quality before listing. We do not observe a similar pattern for firms cross-listed on other non-U.S. exchanges or on the U.S. over-the-counter market, suggesting a unique quality to cross-listing on U.S. exchanges. ∗University of North Carolina, Chapel Hill; †University of Iowa. We appreciate helpful suggestions from Ray Ball (editor); Peter Joos (referee); workshop participants at the Journal of Accounting Research conference, the University of North Carolina, the University of Pennsylvania, the University of California-Berkeley, the University of Queensland, Monash University, Queensland Institute of Technology, the American Accounting Association annual meetings; Allison Evans; Irene Karamanou; Maria Nondorf; Kevin Raedy; Brian Rountree; Steve Salter; and Bob Yetman.