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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Main Authors: CHEN, Kun-Chih, CHENG, Qiang, LIN, Ying Chou, LIN, Yu-Chen, XIAO, Xing
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Language:English
Published: Institutional Knowledge at Singapore Management University 2016
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Online Access: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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spelling 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
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic reverse mergers
Chinese firms
financial reporting quality
bonding hypothesis
cross-listings
Accounting
Asian Studies
Corporate Finance
spellingShingle 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?
description 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.
format text
author CHEN, Kun-Chih
CHENG, Qiang
LIN, Ying Chou
LIN, Yu-Chen
XIAO, Xing
author_facet CHEN, Kun-Chih
CHENG, Qiang
LIN, Ying Chou
LIN, Yu-Chen
XIAO, Xing
author_sort 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?
publisher Institutional Knowledge at Singapore Management University
publishDate 2016
url 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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