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1 – 10 of over 1000Fangjun Sang, Pervaiz Alam and Timothy Hinkel
Prior studies find that US firms with managerial incentives may manipulate the earnings gap to obscure higher performing segments to competitors or to hide underperforming…
Abstract
Purpose
Prior studies find that US firms with managerial incentives may manipulate the earnings gap to obscure higher performing segments to competitors or to hide underperforming segments from external monitors. The purpose of this study is to complement extant research by examining the association between managerial incentives and segment earnings reporting of cross-listed firms in the USA and the impact of country-level characteristics on this association.
Design/methodology/approach
The dependent variable is the earnings gap between firm-level earnings and sum of segment-level earnings. Managerial incentives are proxied by proprietary cost and agency cost. Proprietary cost is measured by the Herfindahl index. Agency cost is measured by inefficient resource transfer activities across segments. Foreign firms in this study are companies listed on major US Stock Exchanges with headquarters outside the USA. Comparable US firms are selected using the Propensity Score Matching procedure as a control group.
Findings
The authors find that 1) proprietary cost motive is not the determinant of earnings gap reporting for cross-listed firms; 2) cross-listed firms motivated by agency costs are more likely to manipulate segment earnings reporting than US firms; and 3) among cross-listed firms motivated by agency costs, firms in weak rule of law countries demonstrate more manipulation in segment earnings than firms in strong rule of law countries.
Originality/value
Extant research with regard to segment reporting exclusively focuses on US firms, and little is known about the practice of segment reporting by cross-listed firms originating from different legal regimes. This study fills the gap in the literature by comparing cross-listed firms to US firms in the reporting of segment earnings. The results of this study have implications for regulators and investors who are interested in evaluating the extent of cross-listed firms’ financial reporting quality.
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Atreya Chakraborty, Lucia Gao and Shahbaz Sheikh
The purpose of this paper is to investigate if there is a differential effect of corporate governance mechanisms on firm risk in Canadian companies cross-listed on US markets and…
Abstract
Purpose
The purpose of this paper is to investigate if there is a differential effect of corporate governance mechanisms on firm risk in Canadian companies cross-listed on US markets and Canadian companies not cross-listed (Canadian only companies).
Design/methodology/approach
Using a sample comprised of all Canadian companies included in the S&P/TSX Composite Index for the period 2009–2014, this study applies OLS and fixed effect regressions to investigate the effect of corporate governance mechanisms on firm risk. Interaction variables between governance mechanisms and the cross-listing status are used to examine if this effect is different for cross-listed firms.
Findings
Results indicate that the effect of board characteristics such as size, independence and proportion of female directors remains the same in both cross-listed and not cross-listed firms. CEO duality and insider equity ownership impact firm risk only in cross-listed companies, while institutional shareholdings, environmental, social and governance disclosure and family control affect firm risk in Canadian only firms. Overall, the empirical results indicate that some governance mechanisms impact firm risk only in firms that cross-list, while others are well-suited for Canadian only firms.
Practical implications
This study suggests that some of the differences between Canadian companies that cross-list and the Canadian companies that do not cross-list in US stock markets may change the impact of governance mechanisms on firm risk. Therefore, these findings have important implications for the design of governance mechanisms in Canadian firms. Since some of these differences are common to other economies, the conclusions can be extended to companies in other countries with similar governance structures.
Originality/value
Although previous studies have investigated the effect of governance mechanism on firm risk, this is the first paper that studies the differential effect for companies that cross-list in US markets. Specifically, differences in the ownership structure, firm control and in the regulatory and institutional environment, may explain this differential effect. Unlike most of the previous studies that focus on the effect of individual governance mechanisms, this study uses several mechanisms and their interactions at the same time.
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Jeffrey M. Coy, Kien D. Cao and Thuy T. Nguyen
Consistent with an “absolute bonding hypothesis,” the benefits of listing on US exchanges experienced by cross-listed firms are accompanied by an increased risk of experiencing a…
Abstract
Purpose
Consistent with an “absolute bonding hypothesis,” the benefits of listing on US exchanges experienced by cross-listed firms are accompanied by an increased risk of experiencing a spillover effect due to negative news within their industry. The purpose of this study is to test this form of the bonding hypothesis by analyzing the spillover effect to cross-listed firms when class action lawsuits are filed against their industry peers.
Design/methodology/approach
The bonding hypothesis is tested by analyzing the spillover effect to non-sued cross-listed firms of class action lawsuits brought against US domestic firms in the same industry. The spillover effect is identified using cumulative abnormal returns around lawsuit filing dates from 1996 to 2020. A sample of matched non-sued cross-listed and domestic peer firms is evaluated in a cross-sectional analysis to identify country and firm-level characteristics that mitigate the negative spillover effect to cross-listed firms.
Findings
While US firms realize significantly negative abnormal returns when class action suits are filed against their industry peers, the impact to cross-listed peers is statistically insignificant. In multivariate analyses, we show that the ability of cross-listed firms to avoid this negative spillover effect is stronger for firms with greater profitability that are headquartered in countries with better shareholder protections and governance characteristics.
Originality/value
Results suggest that cross-listed firms may have a level of immunization from the negative industry spillover effect of class action lawsuits and, thus, exhibit only “partial bonding” to the US market.
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Claudia Champagne and Lawrence Kryzanowski
The purpose of this paper is to study the impact of cross‐listing and cross‐listing location on the terms of the private debt of firms not located in the USA. Specifically, the…
Abstract
Purpose
The purpose of this paper is to study the impact of cross‐listing and cross‐listing location on the terms of the private debt of firms not located in the USA. Specifically, the paper examines the empirical relationship between three syndicated loan terms (pricing, maturity and amount) at loan initiation and the cross‐listed status of the borrower (cross‐listed in the USA, UK, through depository receipts or not at all), while (not) differentiating between the stage of economic development of the borrower's home country.
Design/methodology/approach
The three loan terms are modeled as a simultaneous system of equations and are estimated on a very extensive sample of 3,883 observations. The impact of endogeneity biases due to the sequential choices to and where to cross‐list are examined using the inverse Mill's ratios from a bivariate probit model.
Findings
All else held equal, foreign borrowers that are cross‐listed directly in the UK obtain loans with higher spreads, longer maturities and larger loan amounts if they are from economically developed countries. Borrowers from emerging economies pay lower spreads but receive shorter maturities on syndicated loans if cross‐listed in the UK. Cross‐listings in the USA are not associated with any significant differential impacts on the three loan terms.
Originality/value
This paper makes an important contribution to the cross‐listing and capital structure literatures by providing evidence that the net benefit from being cross‐listed for one debt component of the cost of capital (i.e. syndicated loans) depends on the listing destination and upon whether or not the borrower is from an emerging economy. The paper provides practical guidance to corporate financial officers on the benefits of international cross‐listing and the choice of cross‐listing venues on the terms of private debt issues.
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Shaw Chen, Bing-Xuan Lin, Yaping Wang and Liansheng Wu
The effectiveness of corporate governance is a major factor in forecasting firm performance. We examine the relationships among cross-listing, corporate governance and firm…
Abstract
The effectiveness of corporate governance is a major factor in forecasting firm performance. We examine the relationships among cross-listing, corporate governance and firm performance for a sample of Chinese cross-listed companies. We show that cross-listed firms display higher overall quality of corporate governance compared to non-cross-listed firms. Consequently better corporate governance results in higher operating performance. Our results support the bonding hypothesis of cross-listing. Furthermore, we also illustrate that the cross-listing status encapsulates the higher quality of corporate governance that leads to higher operating performance. When forecasting performance of cross-listing companies, it is therefore important to recognize the substitute effect between cross-listing and corporate governance.
In this paper, the authors examine the relation between cross-listing and the noncompliance with the mandatory corporate social responsibility (CSR) expenditure regulation in…
Abstract
Purpose
In this paper, the authors examine the relation between cross-listing and the noncompliance with the mandatory corporate social responsibility (CSR) expenditure regulation in India, the first country to legally mandate the CSR expenditure.
Design/methodology/approach
The authors apply panel logit and ordinary least square (OLS) regression models to examine the impact of cross-listing on the noncompliance with the mandatory CSR expenditure regulation because panel regression has lesser multicollinearity problems and has the benefit of controlling for individual or time heterogeneity mostly present in cross-section or time series data.
Findings
Using a sample of 1,027 listed Indian firms, the authors show that the cross-listed firms are more likely to comply with the mandatory CSR expenditure than non-cross-listed firms. The authors further show that this relation holds only for those firms which are exposed to higher agency problems, for firms affiliated to business groups and for firms operating in high litigation risk industries. Finally, the authors show that cross-listed firms complying with the mandatory CSR expenditure command more valuation premiums.
Practical implications
This study’s results suggest that the noncompliance of the Indian firms with the mandatory CSR expenditure regulation comes down once they cross-list their shares in the US or the UK since such firms have to bond to the stronger corporate governance standards of the listed country. Hence, the authors recommend that merely making the investment in CSR activities mandatory may not serve the purpose and the convergence in corporate governance as well as compliance with the CSR expenditure can be achieved through cross-listing in US and UK markets.
Originality/value
One, the authors analyze the effect of cross-listing on the likelihood and magnitude of noncompliance with the CSR mandate. Two, this study is based in India where CSR expenditure has been made mandatory under the Companies Act, 2013. Using CSR mandate as a natural experiment, the authors have access to a richer data set on CSR in terms of the actual expenditure made by the company on CSR activities and the mandatory amount to be spent in a particular year.
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– The purpose of this paper is to document earnings management of Chinese firms.
Abstract
Purpose
The purpose of this paper is to document earnings management of Chinese firms.
Design/methodology/approach
The paper takes advantage of the introduction of stringent delisting requirements around 2000 that non-cross-listed firms with consecutive earnings losses for more than two years would be delisted from the mainland Chinese exchanges. The paper examines whether listed firms in Chinese market manage earnings to avoid listings. The paper also examines whether mainland Chinese firms cross-listed in Hong Kong exchanges manage earnings the same way. The measure for earnings management is derived from a kernel density estimate for the return on equity distribution, following Bollen and Pool (2009).
Findings
The paper finds that the new delisting threats induce rampant earnings management on mainland markets, and cross-listing in Hong Kong has a curbing effect on earnings management. The paper also finds that prices became less value relevant after the implementation of delisting regulations, and investors rationally discounted the reliability of earnings announcements in China. Such market responses were absent for cross-listed firms in Hong Kong.
Originality/value
There is little conclusive evidence about whether cross-listing in a non-US market has a curbing effect on earnings management. The paper contributes to this literature by using this unique exogenous policy change in China and following a difference-in-difference approach in identifying the potential curbing effect. The particular measure adapted from Bollen and Pool (2009) utilizes information of the whole distribution of return on equity, thus extends earlier crude comparison of nearest two bars around zero and partially deals with the potential endogeneity problem.
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Paul Brockman and Dennis Y. Chung
Outlines the reasons why increasing numbers of firms list their shares on more than one stock exchange, previous research on the effects of cross‐listing and inter‐ and intra‐day…
Abstract
Outlines the reasons why increasing numbers of firms list their shares on more than one stock exchange, previous research on the effects of cross‐listing and inter‐ and intra‐day liquidity patterns. Describes the market making system of the stock exchange of Hong Kong and compares 1996‐1997 data on a sample of 33 Hong Kong firms cross‐listed in London with a control sample. Finds the cross‐listed firms have lower trading volumes, higher absolute bid‐ask spreads but lower relative ones and higher average dollar depth. Uses regression techniques to investigate liquidity and presents the results which confirm that cross‐listed firms are more liquid with lower relative spreads and higher depths even after controlling for differences in price, volume, return variance and intertemporal patterns.
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This paper investigates the effect of political uncertainty on the decision to cross-list in the United States (US).
Abstract
Purpose
This paper investigates the effect of political uncertainty on the decision to cross-list in the United States (US).
Design/methodology/approach
To reach our paper aim, we use a sample of 589 non-US firms cross-listed in the US for the period from 2000 to 2019. We perform logit regression and use several political uncertainty proxies, including US election presidential years, political voting margin and the political uncertainty index from Baker et al. (2002), as a continuous measure of general political condition (Francis et al., 2021).
Findings
We find the following results. Non-US firms are less likely to cross-list their shares when US political uncertainty is high. We also find that the decision to cross-list is driven by price informativeness as a channel that can explain the role of political uncertainty. Our results are robust to the endogeneity concern. In addition, we find that political administration (Democrats vs Republicans) significantly affects the decision to cross-list. More particularly, we show that firms are more likely to cross-list their shares in the US when Democrats win the elections. Moreover, we find that cross-listed firms exhibit lower valuation compared to their non-cross-listed peers when US political uncertainty is high.
Originality/value
Using a unified framework of non-US firms cross-listed in the US, this paper contributes to different strands of the literature. Our first main contribution adds to the literature on cross-listing by providing, in our knowledge, the first evidence regarding the relation between cross-listing and political uncertainty. We add to the existing literature by showing that US political uncertainty significantly determines the decision to cross-list and value creation for cross-listed firms. Whether and how managers alter their strategic decision behavior in such settings is less clear. Hence, our paper contributes to the literature by documenting how political uncertainty impacts cross-listing decision and shapes management guidance decisions. Second, this study joins a growing body of literature that examines the real impact of economic policy uncertainty (EPU) on economic outcomes. We provide empirical evidence suggesting that cross-listed firms exhibit lower valuation during period of high political uncertainty due to decreased price informativeness.
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Jun Chen, Alireza Tourani-Rad and Ronghua Yi
The purpose of this paper is to investigate the impact of short selling and margin trading on the price discovery and price informativeness of cross-listed firms, using a sample…
Abstract
Purpose
The purpose of this paper is to investigate the impact of short selling and margin trading on the price discovery and price informativeness of cross-listed firms, using a sample of Chinese firms listed on the China and Hong Kong stock exchanges.
Design/methodology/approach
The sample consists of 67 Chinese cross-listed firms on A-share and H-share markets out of which 18 firms are allowed to be sold short/ traded on margin since March 2010. Using pre- and post-event period, the authors compare and contrast various market microstructure variables. The contributions of the home (A-share) and overseas (H-share) markets to the incorporation of new information into prices are calculated following the permanent-transitory approach of Gonzalo and Granger (1995) as well as the adverse selection component of Lin et al. (1995).
Findings
The findings indicate that for the group of Chinese cross-listed firms that are not allowed to be sold short or bought on margin, the home (A-share) market contributes more to the price discovery process over time. However, for the group of cross-listed firms that are eligible for short selling and margin trading, the authors observe no significant difference in the contribution of either A- or H-share markets to the price discovery. The contribution of home market for these firms is even lower around the announcement of major events. The authors further find that while the short sale activities appears to be informative, measured by the adverse selection (AS) component of spread, on the whole they have not led the A-share markets to be more informative.
Research limitations/implications
The sample of cross-listed Chinese firms that are allowed to be sold short or bought on margin are rather limited. Hence, the results should be read with some caution.
Practical implications
The removal of short selling constraints appears to improve the contribution of the respective markets to the process price discovery, in the case for larger cross-listed firms.
Originality/value
The authors shed new lights on how the introduction of short selling and margin trading impacts on the price discovery of the Chinese cross-listed firms. A further contribution of the study is the use of high frequency data, while most of the previous studies on the Chinese markets use daily data.
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