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Overseas listing and accounting conservatism: evidence from Chinese H-share companies

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  • Fan-Hua Kung
  • Kieran James
  • Chia-Ling Cheng
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    Abstract

    Purpose – The objective of this paper is to examine the incremental effects of overseas listing on earnings conservatism. In particular, it investigates whether mainland Chinese companies listed “overseas” in Hong Kong exhibit a higher degree of earnings conservatism than companies without overseas-listing. Design/methodology/approach – The paper employs the concept of “conditional conservatism” and adopts Basu’s (1997) conservatism model, examining data for Chinese companies overseas listed on the Stock Exchange of Hong Kong as H-shares, to test hypothesis concerned with the difference in the speed with which economic gains and losses are captured in accounting earnings. Findings – The empirical findings indicate that both overseas-listed and China-only-listed Chinese companies demonstrate a minimal degree of earnings conservatism in the earlier sample sub-period. However, companies listed overseas provide a higher degree of earnings conservatism overall. Furthermore, this conservatism becomes statistically significant in the 2006 to 2008 sub-period. Originality/value – The evidence in this study shows that differences in earnings conservatism arise from differential information demands and differential regulations. Hence the findings have direct policy implications for the regulatory agencies in China and Vietnam and in the ex-communist countries further afield such as Russia, the former Soviet Union, and Eastern Europe.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Asian Review of Accounting.

    Volume (Year): 19 (2011)
    Issue (Month): 3 (October)
    Pages: 266-278

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    Handle: RePEc:eme:arapps:v:19:y:2011:i:3:p:266-278

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    Related research

    Keywords: Accounting; Accounting conservatism; Accounting regulation; Basu model; China; Communism; Earnings conservatism; Earnings quality; Maoism;

    References

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    1. RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, . "Legal Determinants of External Finance,"," CRSP working papers, Center for Research in Security Prices, Graduate School of Business, University of Chicago 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    2. Sherman Cheung, C. & Lee, Jason, 1995. "Disclosure environment and listing on foreign stock exchanges," Journal of Banking & Finance, Elsevier, Elsevier, vol. 19(2), pages 347-362, May.
    3. Ball, Ray & Shivakumar, Lakshmanan, 2005. "Earnings quality in UK private firms: comparative loss recognition timeliness," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 39(1), pages 83-128, February.
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    7. Bushman, Robert M. & Piotroski, Joseph D., 2006. "Financial reporting incentives for conservative accounting: The influence of legal and political institutions," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 42(1-2), pages 107-148, October.
    8. Roell, Ailsa, 1996. "The decision to go public: An overview," European Economic Review, Elsevier, Elsevier, vol. 40(3-5), pages 1071-1081, April.
    9. Ding, Yuan & Su, Xijia, 2008. "Implementation of IFRS in a regulated market," Journal of Accounting and Public Policy, Elsevier, Elsevier, vol. 27(6), pages 474-479.
    10. Pound, John, 1988. "Proxy contests and the efficiency of shareholder oversight," Journal of Financial Economics, Elsevier, Elsevier, vol. 20(1-2), pages 237-265, January.
    11. Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 24(1), pages 3-37, December.
    12. Ferdinand A. Gul, 2006. "Auditors' Response to Political Connections and Cronyism in Malaysia," Journal of Accounting Research, Wiley Blackwell, Wiley Blackwell, vol. 44(5), pages 931-963, December.
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