As Foreign Registrants Abandon the U.S. Capital Markets, What Happens to the Cross-Listing Audit Fee Premium?

Abstract

Foreign firms cross-listing in the U.S. benefited from increased accounting quality and valuation stemming from the historically more stringent accounting and regulatory environment in the U.S. compared to their home markets. Auditors of these foreign firms, also facing this more rigorous reporting regime, charged a cross-listing audit fee premium. However, recent events have caused an increase in these firms leaving U.S. markets. Using a sample of cross-listed firms from 2004-2013 that voluntarily delisted and deregistered from U.S. markets and reporting requirements, we find that deregistration is associated with a decrease in audit fees for firms returning to non-IFRS environments and additional tests show the level of legal liability in the home market, relative to the U.S., is not a significant mitigating factor in this negative association between deregistration and audit fees. These findings indicate that, after controlling for country and legal effects, firms returning to IFRS jurisdictions do not experience a significant change in the complexity of their accounting environments, mitigating the impact of deregistration on audit fees, implying that selected markets outside of the U.S. have established comparable reporting regimes.