The Impact Of Cross-listing On Earnings Management

With the growing integration of international capital markets, the degree of liberalization of capital flow between countries is strengthening. The action that listed enterprises enter international capital market is more and more frequent, then the number of listed enterprises increases rapidly, which has caused more scholar’s attention to cross listing. The main research focuses on the motivation of cross listing, the reaction on the capital market and so on. The earnings quality of listed enterprises is not only directly related to the stakeholders, especially investors who will make correct decisions based on earnings information, but also one of major issues which stock market regulators focus on. But some research suggest that managers of listed enterprises may manage the earnings based on the motivation of maximize their own interests, reduce the cost of debt, improving the company value and avoiding a loss. While listing on a higher level capital market can improve the level of governance, strengthening the protection of minority shareholders and investors, improving the level of information disclosure, so can cross listing develop its positive effect to inhibit the motivation of earnings management, so as to reduce the extent of earning management and improve the quality of earnings?This paper first reviews the relevant research of cross listing and earnings management which act as the foundation for further study. Secondly, based on the data of 64 A+H listed companies during the period 2003-2013, using discretionary accruals, real earnings management and items below the line to measure earning quality, this paper adopts the method of grouping comparison and multiple regression to study the effect of cross listing on earnings quality. The empirical results show that(1) discretionary accruals of A+H listed companies is significantly lower than A shares of listed companies, while the real earnings management and items below the line are not.(2)discretionary accruals is negative correlation with cross listing in the level of 1%, the real earnings management and items below the line are not significantly correlation with cross listing.(3)higher debt ratio has a negative effect on discretionary accruals, but has a positive effect on the real earnings management and items below the line.(4)the executive compensation has a significant positive effect on discretionary accruals and items below the line, while has a negative on the real earnings management index.