Financial Reporting Quality of Chinese Reverse Merger Firms: The Reverse Merger Effect or the China Effect?
In this paper, we examine why Chinese reverse merger (RM) firms have lower financial reporting quality than U.S. IPO firms. We find that the financial reporting quality of U.S. RM firms is similar to that of matched U.S. IPO firms, but Chinese RM firms exhibit lower financial reporting quality than...
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sg-smu-ink.soa_research-25002020-01-12T05:28:04Z Financial Reporting Quality of Chinese Reverse Merger Firms: The Reverse Merger Effect or the China Effect? CHEN, Kun-Chih CHENG, Qiang LIN, Ying Chou LIN, Yu-Chen XIAO, Xing In this paper, we examine why Chinese reverse merger (RM) firms have lower financial reporting quality than U.S. IPO firms. We find that the financial reporting quality of U.S. RM firms is similar to that of matched U.S. IPO firms, but Chinese RM firms exhibit lower financial reporting quality than Chinese ADR firms. We also find that Chinese RM firms exhibit lower financial reporting quality than U.S. RM firms. These results indicate that the use of the RM process is associated with poor financial reporting quality only in firms from China, where legal enforcement and investor protection are weak. In addition, we find that compared with Chinese ADR firms, Chinese RM firms have weaker bonding incentives (as measured by CEO turnover-performance sensitivity) and poorer corporate governance. These factors in turn contribute to the lower financial reporting quality of Chinese RM firms. Overall, our results suggest that the less-scrutinized RM process allows Chinese firms with weak bonding incentives and poor governance to gain access to U.S. capital markets, resulting in poor financial reporting quality. 2016-09-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soa_research/1501 info:doi/10.2308/accr-51376 https://ink.library.smu.edu.sg/context/soa_research/article/2500/viewcontent/FinancialReportingQualityChineseReverseMergerFirms_2015_pp.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University reverse mergers Chinese firms financial reporting quality bonding hypothesis cross-listings Accounting Asian Studies Corporate Finance |
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reverse mergers Chinese firms financial reporting quality bonding hypothesis cross-listings Accounting Asian Studies Corporate Finance CHEN, Kun-Chih CHENG, Qiang LIN, Ying Chou LIN, Yu-Chen XIAO, Xing Financial Reporting Quality of Chinese Reverse Merger Firms: The Reverse Merger Effect or the China Effect? |
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In this paper, we examine why Chinese reverse merger (RM) firms have lower financial reporting quality than U.S. IPO firms. We find that the financial reporting quality of U.S. RM firms is similar to that of matched U.S. IPO firms, but Chinese RM firms exhibit lower financial reporting quality than Chinese ADR firms. We also find that Chinese RM firms exhibit lower financial reporting quality than U.S. RM firms. These results indicate that the use of the RM process is associated with poor financial reporting quality only in firms from China, where legal enforcement and investor protection are weak. In addition, we find that compared with Chinese ADR firms, Chinese RM firms have weaker bonding incentives (as measured by CEO turnover-performance sensitivity) and poorer corporate governance. These factors in turn contribute to the lower financial reporting quality of Chinese RM firms. Overall, our results suggest that the less-scrutinized RM process allows Chinese firms with weak bonding incentives and poor governance to gain access to U.S. capital markets, resulting in poor financial reporting quality. |
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CHEN, Kun-Chih CHENG, Qiang LIN, Ying Chou LIN, Yu-Chen XIAO, Xing |
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CHEN, Kun-Chih CHENG, Qiang LIN, Ying Chou LIN, Yu-Chen XIAO, Xing |
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CHEN, Kun-Chih |
title |
Financial Reporting Quality of Chinese Reverse Merger Firms: The Reverse Merger Effect or the China Effect? |
title_short |
Financial Reporting Quality of Chinese Reverse Merger Firms: The Reverse Merger Effect or the China Effect? |
title_full |
Financial Reporting Quality of Chinese Reverse Merger Firms: The Reverse Merger Effect or the China Effect? |
title_fullStr |
Financial Reporting Quality of Chinese Reverse Merger Firms: The Reverse Merger Effect or the China Effect? |
title_full_unstemmed |
Financial Reporting Quality of Chinese Reverse Merger Firms: The Reverse Merger Effect or the China Effect? |
title_sort |
financial reporting quality of chinese reverse merger firms: the reverse merger effect or the china effect? |
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Institutional Knowledge at Singapore Management University |
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2016 |
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https://ink.library.smu.edu.sg/soa_research/1501 https://ink.library.smu.edu.sg/context/soa_research/article/2500/viewcontent/FinancialReportingQualityChineseReverseMergerFirms_2015_pp.pdf |
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