The Impact of Eliminating the Form 20-F Reconciliation on Shareholder Wealth: Evidence from U.S. Cross-Listed Firms

Abstract

ABSTRACT This paper examines shareholder wealth effects in U.S. and home-country markets relating to the Securities and Exchange Commission's (SEC) decision to eliminate the Form 20-F reconciliation. During the period of examined events, we find positive cumulative abnormal returns for the treatment sample of U.S. cross-listed firms that prepare financial statements under International Financial Reporting Standards (IFRS), but no such effects for our control sample comprising cross-listed non-IFRS, U.S. domestic, or home-country firms. We find the stock market impact for our treatment sample to be positively related to our proxy for cost savings and negatively related to the pre-adoption reconciliation magnitude from IFRS to U.S. GAAP. This suggests shareholders place some value on reconciliation information, but the costs of preparing and auditing reconciliations generally outweigh concern about information loss. Moreover, we find that information loss is less pronounced for firms having used IFRS for a longer period, suggesting the learning effect mitigates information loss. Data Availability: Data are publicly available from sources identified in the article.