The impact of cross-listing on earnings management and its economic consequence: evidence from China

ABSTRACT

This study empirically examines the effect of cross-listing on earnings management and its economic consequences using A + H cross-listed company data from China. Considering both accrual-based earnings management (AEM) and real earnings management (REM) and modifying reported performance to obtain true performance, we use path analysis to find that cross-listing can reduce AEM, thereby damaging firm performance, and can reduce REM, thereby benefiting firm performance. We further examine the mechanism of benefit of earnings management. The results reveal that AEM can maintain debt contract efficiency and REM plays a role in signaling better performance.

KEYWORDS:

• Cross-listing
• accrual-based earnings management (AEM)
• real earnings management (REM)
• bonding hypothesis
• path analysis

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. A shares are shares of companies traded on the two mainland Chinese stock exchanges, that is, the Shanghai Stock Exchange and the Shenzhen Stock Exchange. H shares are shares of companies incorporated in mainland China that are traded on the Hong Kong Stock Exchange. A + H cross-listing refers to the behavior of Chinese companies that list their shares simultaneously on either of the two mainland Chinese stock exchanges as well as the Hong Kong stock exchange.

Additional information

Funding

This work was supported by National Natural Science Foundation of China [71371155].