Do US cross-listings, IFRS adoption and domestic investor protection impact earnings management?

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Abstract
Purpose: This paper investigates the impact of International Financial Reporting Standards (IFRS) adoption and domestic investor protection on the relationship between United States (US) cross-listing and earnings management.Design/methodology/approach: The paper applies ordinary least squares (OLS) regression analyses to a matched sample of cross-listed and non-cross-listed firms from 2000 to 2018, covering 38 countries.Findings: We find that US cross-listed firms have lower real earnings management. The results also show that real earnings management is lower for US cross-listed firms that adopt IFRS and from high domestic investor protection countries. Our results further show that real earnings management is higher when cross-listed firms use Level 1 American Depository Receipts (ADRs) to cross-list but adopting IFRS and high domestic investor protection help reduce real earnings management. Using the SEC’s Rule 12h-6 as a quasi-natural experiment, we document that post-12h-6 Rule, firms in high domestic investor protection countries experience a reduction in both accruals and real earnings management. However, the result is the opposite in countries with low investor protection.Originality/value: Our findings have implications for regulators and policymakers on the impact of ADR levels and Rule 12h-6 on earnings management.

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