How Representative are Cross-Listed Firms? An Analysis of Firm and Accounting Quality

Abstract

We provide evidence on the characteristics of local-GAAP reported earnings for firms choosing to cross list in US markets relative to both a matched sample of foreign firms currently not choosing to cross list and a matched sample of US firms. Our evidence suggests that cross-listing firms differ from other firms in their local markets in terms of earnings performance, riskiness, the time series properties of earnings and accruals, and the degree of association between accounting data and share prices. Based on local-GAAP earnings, cross-listing firms appear to be better performing, less risky, and less aggressive in terms of earnings management. They also report accounting data that is more strongly associated with share price. On all dimensions, cross-listed firms appear to be more similar to US firms than do other firms in their local markets. Further, the evidence suggests a shift in accounting quality around the time of cross listing, suggesting that firms may change in anticipation of the cross-listing decision. Our results have potential implications for regulators in providing evidence on the extent to which firms that choose to cross list under current requirements are likely to be representative of firms that might cross list in the absence of such requirements.