Foreign Registrants Research Articles

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

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.

Design and Research of a New secure Authentication Protocol in GSM networks

As the first line of defense in the security application system, Authentication is an important security service. Its typical scheme is challenge/response mechanism and this scheme which is simple-structured and easy to realize has been used worldwide. But these protocols have many following problems In the GSM networks such as the leakage of user indentity privacy, no security protection between home registers and foreign registers and the vicious intruders’ information stealing and so on. This paper presents an authentication protocol in GSM networks based on maths operation and modular square root technique . The analysis of the security and performance has also been done. The results show that it is more robust and secure compared to the previous agreements.

PULMONARY ARTERIAL HYPERTENSION DIAGNOSTICS SPECIFICS IN SYSTEMIC SCLERODERMIA

Aim. Pulmonary arterial hypertension (PAH) in systemic sclerodermia patients (SSD) is associated with poorer outcomes. Aim of current study is to assess the prevalence of PAH associated with SSD, among patients with newly diagnosed pulmonary hypertension (PH), included to the registry of Federal Almazov North- West Medical Research Centre and to conduct the analysis of applicability of the algorithms for earlier diagnostics of PH in SSD patients. Material and methods. To comparative analysis we included patients with idiopathic PAH (iPAH) and PAH associated with SSD (SSD-PAH). All patients underwent thorough echocardiographic test (EchoCG), 6-minute walking test (6WT), spirometry. To confirm the diagnosis of PAH we applied the right chambers catheterization (RCC). Results . Totally, 33 SSD patients included complaining on dyspnea, of those 14 had verified PAH and were taking specific treatment. With PHAROS algorithm we were able to separate additional risk subgroup of 6 patients for further study. Among participants, iPAH had 44%, and SSD-PAH — 11%. Most patients in both groups had III-IV FC (WHO) of PH: 55% of iPAH and 75% of PAH-SSD. In SSD patients there were lower values of the right ventricle systolic function by EchoCG [FAC=26±7% (р=0,028); TAPSE=15±3 mm (р=0,027); TAS’V=9±2 cm/s (р=0,023)]; values of lung diffusion capacity (DLco): 46±14% vs 62±16% in iPAH group (р=0,001) and distance of 6WT: 326±105 m vs 383±106 m (р=0,041). This data correlates with foreign registers and witness serious prognosis in PAH-SSD. Conclusion. Our study demonstrated significance of novel algorithms development for earlier diagnostics of PAH and start of specific treatment according to severity of prognosis of SSD-PAH patients. Current guidelines for PAH diagnostics use DETECT algorithm as recommended for application in patients with SSD lasting for more than 3 years and DLco below 60%. We demonstrated the worth of inclusion in investigation algorithm for SSD the additional echocardiographic criteria for PH to increase specificity.

SEC's acceptance of IFRS-based financial reporting: An examination based in institutional theory

In 2007 the Securities and Exchange Commission (SEC) made an historic ruling allowing foreign registrants to file IFRS-based financial statements without reconciling to U.S. GAAP. With that decision, the SEC changed its longstanding practice of adhering to a single set of accounting standards in the U.S. The decision diminishes the standing of two previously powerful institutions: U.S. GAAP and the SEC itself. We examine this important change drawing generally on institutional theory. We draw on several models to obtain insights into the likely roles of both regulator and regulatees, into the reasons the particular type of incremental change mechanism was observed, and into the influence of powerful transnational organizations on both the fact of change and timing of change. The key contribution of the article is to explicate incremental institutional change by examining specific mechanisms of change given the multi-level dynamic of accounting regulation. First, the interplay between national and transnational players and their coalitions shape what becomes an acceptable change mechanism. Second, layering mechanism, where new rules are attached to existing ones, is typically expected to destabilize existing institutions but can also decrease the push for broader change by layering regulation only for a particular segment. Finally, strategies employed by transnational accounting firms to stifle or promote institutional change are of interest. We focus specifically on their role in solidifying a transnational coalition of challengers to U.S. GAAP and therefore of apparently effecting the timing of the change. Documentary empirical data were drawn from the comment letters provided to the SEC in response to the proposed change, as well as from the SEC's final ruling document and from related releases. We analyze formal comment letters issued in response to the proposed 2007 rule, compare those to expectations based on theory and in some cases to prior public positions taken. We interpret our findings against the backdrop of meta level shifts in regulatory loci toward privatization and transnationalization of standard setting.

The internationalization of shipboard space and communities: A historiographical study of Norwegian-owned shipping, 1939–2014

This article examines how researchers from the humanities and social sciences have perceived and projected the changing identities of seafarers, ships and localities in ‘Norwegian-owned’ merchant vessels, 1939–2014. Down to the late 1960s, these researchers regarded Norwegian ships and seamen as a part of Norway in international waters, with the national flag flying at the stern. But the shipping crises of the 1970s and 1980s encouraged shipowners to ‘flag out’ their ships in foreign countries, and to resort to manning companies in Hong Kong and the Philippines to recruit seafarers from low-cost countries. This gave the ship and her crew a multinational identity, with Norwegian officers and Filipino or Chinese ratings. Even the researchers’ point of view changed. During the shipping crises, they advocated building up the Norwegian fleet so that it could compete with foreign fleets. Now their aim was not only to understand the ship as a hierarchical work place, but to contend that a more democratic working community on board would foster more efficient and satisfied employees willing to accept a new manning scale with fewer people working harder to compete with low-cost seafarers. But although the Norwegian-owned fleet in Norwegian and foreign registers never had been larger than in 2014, the researchers and the Norwegian Ship Owners’ Association understood that Norwegian shipping was becoming increasingly dependent on new markets, shipbuilding and labour in the Far East. At the same time, the researchers themselves moved to universities in China and the Philippines to undertake ‘action research’ with Asian cadets.

Swedish Seafarers' Commitment to Work in Times of Flagging out

This study takes its departure in the difficulties to recruit and retain qualified senior seafarers in the Swedish shipping sector. The study focus is on seafarers' motivation at work for the specific shipping company (organizational commitment), and seafarers' motivation towards their occupation (occupational commitment), in times of flagging out. It was hypothesized that the youngest seafarers and the oldest may be most sensitive to foreign registration of ships. Statistical analyses were employed, using a survey material of 1,309 Swedish seafarers randomly collected in 2010 from a national register of seafarers. The results of the analyses show that flagging-out imposes a significant decline in organizational commitment for all seafarers. This decline is related to the perception of the social composition of crew. In addition, the oldest seafarers (age 55+) demonstrate diminished occupational commitment under a foreign flag. This decline is related to the degree of satisfaction with the social security structure. Occupational commitment among the youngest seafarers (age 19-30) is not affected by the nationality of flag. However, this type of commitment is decreasing by the time served on the same ship. This effect is partly related to a decline in satisfaction with the work content. In the concluding discussion, the findings are discussed in more details and recommendations are put forward.

MODERN PRINCIPLES OF QUALITY ASSESSMENT OF CARDIOVASCULAR DISEASES TREATMENT

The most common ways of assessment of cardiovascular diseases treatment abroad, approaches to creation of such assessment methods are considered, as well as data on the principles of the assessment of treatment in Russia. Some foreign registers of acute myocardial infarction, the aim of which was therapy quality assessment, are given as examples. The problem of high-quality treatment based on data from evidence-based medicine, some legal aspects related to clinical guidelines in Russia are considered, as well as various ways of treatment quality assessment.

An examination of the relationship of IT control weakness to company financial performance and health

PurposeThe purpose of this study is to investigate the relationship of weaknesses in IT‐related internal controls to companies' overall financial performance and health.Design/methodology/approachThe study examines four accounting measures: liquidity, solvency, profitability, and market value. During the four‐year period of 2004‐2007, the authors identified companies that reported at least one material IT weakness and matched them with a similar set of companies with no reported material weaknesses. Additionally, for a subset of the companies in which a good match could be identified, a second data set was developed for comparison of companies reporting only material non‐IT weaknesses.FindingsAs expected, companies reporting IT weaknesses experienced less of an ability to pay short‐term and long‐term debts, earned lower profits, and possessed lower market value than companies with no weaknesses. Companies reporting IT weaknesses experienced worse financial performance and health than companies with non‐IT weaknesses.Research limitations/implicationsAt the time of this study, most foreign registrants listed on US stock exchanges had not completed and filed their initial SOX 404 assessment with the SEC. Furthermore, small public companies (i.e. under a $75 million market capitalization) were not required to comply with 404 reporting requirements at the time of this study. In addition, Compustat provides information only on publicly traded companies.Originality/valueThe current study builds on IT governance research in two key ways. First, academia and industry must move past the discussion of IT governance design to examine the performance of IT governance efforts (i.e. effectiveness of controls audited by an independent third party) in relation to key financial performance and health indicators. Second, this study uses more objective measures of IT governance than were available in the past (i.e. the internal control and financial data reported in companies' audited financial statements). The results provide insight into the relationship of IT governance to overall financial well‐being.

Book Reviews

Book Reviews

An Empirical Assessment Of Reported Intangible Assets Under IAS No.38

Since the European Union (EU) adopted the New Accounting Strategy in 1995, several European countries have passed laws allowing their companies to publish consolidated financial statements in accordance with International Accounting Standards (IAS). As IAS is accepted by more and more countries and stock exchanges, SEC is under increasing pressure to accept IAS-based financial statements from foreign registrants. Recently, SEC indicated its intention to allow the utilization of IAS by foreign issuers on the condition that IAS is comprehensive and of high quality, and calls for the study of the quality of IAS. This study attempts to address the intangible assets controversy surrounding IAS No.38. Under IAS No.38 Intangible Assets, research and development (R&D) costs are separated. Companies are required to expense the research costs, but capitalize development costs, which must be expensed when incurred under U.S. GAAP. Furthermore, IAS No.38 allows the capitalized intangible assets (including development costs) to be revalued in subsequent periods, which is not allowed under U.S. GAAP. Critics of IAS No.38 argue that separation of R&D and the capitalization of development costs will likely be applied inconsistently across companies and provide an opportunity for management to manipulate the reported accounting numbers. Based on the financial and stock pricing information of 57 companies from eight countries whose consolidated financial statements were prepared using IAS, this study documented significant empirical evidence on investors assessment of IAS No.38s intangible assets reporting policy. Specifically, using a cross-sectional equity valuation model, evidence is obtained suggesting that intangible assets reported by sample firms under IAS No. 38 reflects the economic value of the underlying intangible assets as perceived by investors. The findings seem to support the use of IAS in preparation of financial statements for cross-border offerings.

The Impact of the Sarbanes‐Oxley Act on the Audit Fees of Australian Listed Firms

The Sarbanes‐Oxley Act (2002) (SOX) was enacted to improve the corporate governance practices of US firms. Significantly, foreign registrants traded on US stock exchanges are also required to comply with SOX. This study assesses the impact of the SOX legislation on non‐US firms by examining audit fees for Australian firms with foreign registrant status in the US from 2001 to 2005, compared with audit fees for other Australian firms. The findings indicate that Australian companies issuing American Depositary Receipts (ADRs) incurred substantial increases in audit fees and Australian firms subject to the full provisions of SOX incurred larger increases in audit fees. These findings provide a broader understanding of the compliance costs for non‐US firms subject to SOX and therefore inform both policy‐makers and firms.

IFRS Developments in the USA and EU, and Some Implications for Australia

There have been several developments recently, both in the United States (US) and the European Union (EU), which will have consequences in Australia. The two major developments in the US are the decision by the Securities and Exchange Commission (SEC) to drop the reconciliation requirement for foreign registrants that adopt International Financial Reporting Standards (IFRS) and the serious consideration that the SEC is currently giving to allow US publicly traded companies to adopt IFRS. The developments in the EU involve its ever‐lengthening endorsement process and the increasing pressure being brought on the International Accounting Standards Board (IASB) and its oversight body, the International Accounting Standards Committee Foundation (IASCF) trustees, to alter their composition and the character of their operations. At the same time, there has been the FASB's appeal to the EU to accept IFRS without any endorsement process. The developments in the US have been lauded by the IASB and in Europe. They represent an impressive vote of confidence in the IASB and in the efforts being made by national standard setters and securities market regulators around the world. The US has already taken a long stride towards joining the more than 110 countries and other jurisdictions that have committed themselves to allow or require the use of IFRS for some or all reporting entities.

The Effect of Audit Committees on Earnings–Return Association: Evidence from Foreign Registrants in the United States

Manuscript Type: Empirical Research Question/Issue: This study examines whether foreign registrants that choose not to establish audit committees in the US have generally lower earnings–return associations. Research Findings/Insights: Our empirical results indicate that earnings–return associations for foreign registrants without audit committees are significantly lower compared with those of their US-matched firms which are required to establish audit committees. This result is even more pronounced after the introduction of new audit committee rules in 1999 aimed at increasing the responsibilities of audit committees. In addition, earnings–return associations of foreign registrants are found to increase following the establishment of audit committees. Overall, our results are consistent with the idea that the establishment of audit committees may be related to higher earnings–return associations. Theoretical/Academic Implications: Our empirical results suggest that foreign registrants that have chosen to establish audit committees have better earnings–return associations. This implies that the effectiveness of the audit committee in resolving agency problems is applicable to foreign companies, even though their home countries adopt non-Anglo-American corporate governance systems. Practitioner/Policy Implications: This study offers important insights to foreign firms listed in the US. As the choice not to form an audit committee may increase the cost of capital in the US, but save the cost of establishment in home market, the managers of foreign registrants should weigh the costs and benefit of the options and make a choice accordingly.

Are Changes in Cross-Listing in the U.S. from the Pre- to Post-Sarbanes-Oxley Period Associated with Shareholder Protection in Foreign Firms' Home Countries?

ABSTRACT: This paper investigates the association between the change in cross-listing activities of American Depository Receipts (ADRs) in U.S. stock exchanges from the pre- to post-Sarbanes-Oxley (SOX) period, and shareholder protection in foreign registrants' home countries. The SOX regulation does not apply to all four types of ADRs. Level II and III ADRs are subject to full Securities and Exchange Commission (SEC) regulation, and hence full compliance with SOX, while Level I and IV ADRs are not subject to SOX. Using cross-listing activities from 31 countries from 1998 to 2005, this study computes an aggregate measure to summarize each country's cross-listing activity for all ADRs; Level I and IV ADRs, and Level II and III ADRs, respectively, during the pre- (1998–2001) and post-SOX period (2002–2005). The results show that only listings of Level II and III ADRs have dropped significantly in the post-SOX period, and this drop is more evident for foreign registrants from countries with a lower level of shareholder protection, suggesting that SOX has a different regulatory burden on foreign firms in different institutional environments.

20-F reconciliations and investment recommendations by financial professionals

As part of the U.S. regulatory requirements, non-U.S. companies registered on U.S. stock exchanges (‘foreign registrants’) are required to compile financial reports that comply with U.S. Generally Accepted Accounting Principles (‘GAAP’) or provide a reconciliation of non-U.S. GAAP financial statements to U.S GAAP (20-F reconciliation). The objective of this study is to determine if identical information with respect to U.S. GAAP may be evaluated differently depending on whether the 20-F reconciliation information is presented in a positive (20-F reconciliation gain) or negative (20-F reconciliation loss) way. The research results indicate that the financial professionals' investment recommendations were significantly lower for a firm when it reports a reconciliation loss relative to when it reports a reconciliation gain or when it reports under U.S. GAAP, although the financial results were identical in all cases. Further, consistent with Bradshaw [Bradshaw MT. How do analysts use their earnings forecasts in generating stock recommendations? Account Rev 2004;79(1):25–50.], the financial professionals' expectations of earnings growth were significantly and positively associated with their investment recommendation.

Bonding to the Improved Disclosure Environment in the United States: Firms' Listing Choices and Their Capital Market Consequences

This paper examines whether the current reporting and disclosure requirements for foreign registrants in the United States affect foreign firms' decisions to list on a U.S. exchange. We find that while firms from a weak disclosure environment are more likely to cross-list and either trade over-the-counter or be placed privately among institutional investors, they are less likely to list on an exchange in which firms are required to comply with U.S. GAAP. This is consistent with the idea that the decrease in the potential private control benefits accruing to managers discourages them from listing on an organized exchange. We further conduct pricing tests to investigate whether the choice relating to the mode of listing has capital market consequences. These tests indicate that: (1) exchange-listing firms receive a higher valuation (i.e., Tobin's q) than non-exchange-listing firms; and (2) exchange-listing firms domiciled in a higher disclosure regime, who incur lower costs of U.S. GAAP compliance, generally receive a higher valuation than exchange-listing firms from a lower-disclosure regime. Overall, the lower tendency of firms domiciled in a lower disclosure regime to list on an organized exchange appears to be consistent with the smaller valuation benefit they receive from the listing.

20-F Reconciliations and Investors' Perceptions of Risk, Financial Performance, and Quality of Accounting Principles

This paper investigates whether the increases and decreases to earnings and stockholders' equity presented in 20-F reconciliations influence perceptions of the risk of investing, the quality of the accounting principles, and the financial performance of the reporting firm. The research results indicate that subjects perceive the risk of a hypothetical firm filing a 20-F reconciliation with reconciliation decreases to be higher, and the quality of accounting principles lower, than a hypothetical firm either complying with U.S. GAAP or filing a 20-F reconciliation with reconciliation increases. Additional analysis suggests that these significant effects are due to a negative effect from the reconciliation decrease consistent with the effects predicted by attribute framing theory. The findings have implications for the SEC as they consider whether foreign registrants on U.S. exchanges should be allowed to comply with International Accounting Standards (IAS) without reconciliation to U.S. GAAP. These findings also have implications for foreign registrants on U.S. exchanges. The results indicate that firms that have higher non-U.S. GAAP earnings (and a consequent reconciliation decrease) should comply with U.S. GAAP as the reporting of a reconciliation decrease creates a negative perception of the firm.

A discussion of the paper “Differential levels of disclosure and the earnings–return association: evidence from foreign registrants in the United States” by Edward Douthett, Jr., Jonathan E. Duchac, In-Mu Haw, Steve C. Lim

A discussion of the paper “Differential levels of disclosure and the earnings–return association: evidence from foreign registrants in the United States” by Edward Douthett, Jr., Jonathan E. Duchac, In-Mu Haw, Steve C. Lim

Response to discussion on “Differential levels of disclosure and the earnings–return association: evidence from foreign registrants in the United States”

The discussant raises a number of points that need to be considered in relation to our paper and future research. We will address the points in same order presented by the discussant.

Differential levels of disclosure and the earnings–return association: evidence from foreign registrants in the United States

Foreign companies listing on U.S. exchanges are required to report financial information under U.S. GAAP on form 20-F using either Item 17 or Item 18 disclosure rules. These two disclosure rules differ in that Item 17 allows many exemptions from U.S. GAAP, while Item 18 requires disclosure of all financial information in accordance with U.S. GAAP. This study examines the differential earnings–return association between Item 17 and Item 18 filers. We find significantly higher earnings–return associations for Item 18 filers than for Item 17 filers. While the earnings–return association of Item 18 foreign firms is not different from that of matched U.S. firms (which fundamentally use Item 18 rules), the earnings–return association of Item 17 foreign firms is significantly lower than that of matched U.S. firms. Overall, the results are consistent with the idea that higher levels of disclosure may be related to lower discount rates and higher earnings response coefficients (ERCs).