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Do investors care about earnings quality? The case of Chinese reverse mergers

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  • Wang, Liu

Abstract

This study examines a panel of U.S.-listed Chinese reverse merger firms to address the question whether, and to what extent, earnings quality is valued by investors. Empirical evidence indicates that U.S.-listed Chinese reverse merger firms tend to have much lower earnings quality as compared to both U.S.-listed Chinese IPO firms and ADR firms, as measured by both the absolute value of discretionary accruals and the accruals quality. This fundamental difference, however, is reflected in neither firm valuation nor stock performance, suggesting that investors do not pay enough attention to the integrity of financial information of foreign listings in general and reverse merger firms in particular.

Suggested Citation

  • Wang, Liu, 2019. "Do investors care about earnings quality? The case of Chinese reverse mergers," Pacific-Basin Finance Journal, Elsevier, vol. 55(C), pages 82-94.
    • Handle: RePEc:eee:pacfin:v:55:y:2019:i:c:p:82-94
    DOI: 10.1016/j.pacfin.2019.02.008
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    Cited by:

    1. Nikos Vettas & Konstantinos Peppas & Sophia Stavraki & Michail Vasileiadis, 2020. "The contribution of Industry to the Greek economy: facts and prospects," Economic Bulletin, Bank of Greece, issue 52, pages 29-67, December.
    2. Sonu, Catherine Heyjung, 2022. "Information quality and IPO underpricing: The role of underwriter pricing and allocation powers," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    3. Theodora Kosma & Pavlos Petroulas & Evangelia Vourvachaki, 2020. "What drives wage differentials in Greece: workplaces or workers?," Economic Bulletin, Bank of Greece, issue 52, pages 69-72, December.
    4. Ioannis Asimakopoulos & Athanasios P. Fassas & Dimitris Malliaropulos, 2020. "Does earnings quality matter? Evidence from the Athens Exchange," Economic Bulletin, Bank of Greece, issue 52, pages 93-112, December.
    5. Constantina Backinezos & Stelios Panagiotou & Evangelia Vourvachaki, 2020. "Multiplier effects by sector: an input-output analysis of the Greek economy," Economic Bulletin, Bank of Greece, issue 52, pages 7-28, December.

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