Compliance costs and comparability benefits of cross-listing: Evidence from accounting standard differences and IFRS adoption
ISSN: 1321-7348
Article publication date: 2 October 2019
Issue publication date: 15 November 2019
Abstract
Purpose
The purpose of this paper is to examine two channels through which accounting standard differences could affect cross-listing: compliance costs and/or comparability benefits.
Design/methodology/approach
The authors use two settings to disentangle the two channels. First, financial reporting requirements are more stringent for cross-listings via direct listings than cross-listings via depositary receipts; as a result, the effect of compliance costs (if any) would be manifested differently in the two venues of cross-listings. Second, some host countries allow foreign firms to report under International Financial Reporting Standards (IFRS) without mandating IFRS for domestic firms; compared to host countries that mandate IFRS for both domestic and foreign firms, these IFRS-permitting countries provide a setting to test the importance of comparability benefits while holding constant compliance costs.
Findings
The authors find that prior to IFRS adoption, direct listings decrease with accounting standards differences between two countries while depositary receipts increase with such differences, consistent with the costs of complying with host country’s accounting standards affecting firms’ cross-listing decisions. After the harmonization of accounting standards, the authors find that IFRS-mandating host countries gain cross-listings from other IFRS-mandating jurisdictions, while IFRS-permitting countries do not experience such gains. These combined results suggest that accounting related compliance costs and comparability benefits both influence cross-listing decisions.
Originality/value
The paper employs unique settings that enable an in-depth examination of the role of compliance costs vs that of comparability benefits on cross-listing decisions. The settings employed by the authors allow them to disentangle the two channels and provide an important insight that accounting standard-related compliance costs and comparability benefits both affect cross-listing decisions.
Keywords
Acknowledgements
The authors thank the following for their helpful comments: Mingyi Hung, Grace Pownall, Sergei Sarkissian, Maria Wieczynska and workshop participants at Chinese University of Hong Kong, City University of Hong Kong, City University of New York Baruch College and McGill University. The authors also thank conference participants at the 2014 Hong Kong University of Science and Technology Accounting Research Symposium and the 2015 AAA International Accounting Section mid-year meeting for helpful comments. The authors are grateful for financial support from the Social Sciences and Humanities Research Council of Canada. Wang is grateful for financial support from Hong Kong Research Grants Council (Project No: RGC693613).
Citation
Wang, S. and Wu, S. (2019), "Compliance costs and comparability benefits of cross-listing: Evidence from accounting standard differences and IFRS adoption", Asian Review of Accounting, Vol. 27 No. 4, pp. 563-594. https://doi.org/10.1108/ARA-03-2019-0076
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited