Accounting quality of German and UK cross‐listings

Abstract

Purpose

This paper aims to compare the quality of financial reporting (or accounting quality) of firms cross‐listed in Germany and the United Kingdom relative to domestic firms that are not cross‐listed in Germany and the United Kingdom.

Design/methodology/approach

The authors assess financial reporting quality based on five measures of earnings management; two measures of timely loss recognition; and the explanatory power (R²) of three models of stock price and returns association with accounting data. Accounting quality is associated with less earnings management, more timely loss recognition and higher stock price/returns association with accounting data.

Findings

The authors find that there is no difference in financial reporting quality of firms cross‐listed in Germany and the United Kingdom and domestic firms that do not cross‐list in these countries. They further find that German and UK cross‐listing firms have lower accounting quality than US cross‐listing firms.

Research limitations/implications

The study is subject to some limitations. Cross‐listing firms may be different from non‐cross‐listing firms in characteristics other than country, size and cross‐listing, the variables used to match the firms. The authors also lose quite a number of observations due to the matching process and therefore are limited by a small sample size.

Originality/value

This paper contributes to a growing literature on cross‐listing and quality of financial reporting. The authors extend Lang et al.'s work to exchanges outside of the USA. They provide further support for Coffee, and Lang et al. that firms cross‐listed in the USA conform to higher reporting standards than others, in particular in comparison with firms cross‐listed in Germany.

Citation

Li Eng, L. and Lin, J. (2013), "Accounting quality of German and UK cross‐listings", International Journal of Accounting & Information Management, Vol. 21 No. 3, pp. 192-208. https://doi.org/10.1108/IJAIM-04-2011-0006