Cross-listing Company’s Disclosure And Market Reaction Of Internal Control Weaknesses

In1993，Tsingtao Beer firstly listed in Hong Kong and Shanghai, becoming the firstcross-listing enterprise in China. Since then, more and more Chinese enterpriseschoose to go abroad to list their bonds in overseas market, and many of theseenterprises which has listed overseas select to return to the A-share market.Cross-listing becomes a remarkable phenomenon in the current development ofChina’s securities market. In stark contrast, domestic scholars’research on weaknessesdisclosure situation and market reaction of internal control of cross-listed companies,which is a quite special group, is comparatively less. Besides，their source of researchdata is mostly based on the annual reports of listed companies, lacking concern onother announcements and information sources of the companies. In this circumstance,studying on cross-listing companies’ internal control weaknesses disclosure and itsmarket reaction has a sum of benefits. It can not only provide us with the domesticexperience of the theory on internal control weaknesses disclosure and marketresponse, but also enrich domestic scholars’ existed research of internal controlweaknesses disclosure and the market reaction after disclosure. What’s more, researchon this field could strengthen the supervision on cross-listed companies bysupervision institution, enhance the degree of attention of the management to internalcontrol and help investors to improve the reaction speed of the internal control defectinformation. To sum up, the analysis on A airlines internal control defect disclosure aswell as its market reaction, has certain theoretical significance and practical value.Draw on relevant research results at home and abroad, this article uses case study andevent study, combines qualitative methods with quantitative methods, analyses Aairlines Internal control weaknesses disclosed situation and the market reaction in themainland, Hong Kong and the United States during2001~2011period. The article isdivided into four parts. The first part is introduction, which is composed of foursections, including research background, purpose and significance of the research,methods and content, as well as contribution and limitations. The second part is thereview of the existing literature, combs the literature, both at home and aboard, aboutthe cross-listing and information disclosure, internal control defects disclosed influencing factors as well as the market response of internal control weaknessesdisclosure. Finally, evaluate the status of the overall research. Part3is the analysis ofA airlines weaknesses in internal control disclosure and market reaction. Contrast thesimilarities and differences of A airlines internal control weaknesses disclosuresituation in a decade in two angles: the Mainland and Hong Kong, mainland and theUnited States. Then analyze the influencing factors of the internal control weaknesseswhich are disclosed by the same company under different market conditions. Thenusing the event study methodology, study the speed of different market response, theintensity and investors cautious degree after the disclosure of internal controlweaknesses and corrective measures. The fourth part is conclusions andrecommendations. Summarize the results of this study as follows: firstly, the legalsystem, information disclosure mechanism, the market environment, and certifiedpublic accountants diligence are the factors that affect A airlines internal controldefects disclosure. Secondly, mainland investors’market reaction speed of the internalcontrol weaknesses lags behind U.S. investors’ slightly, but is earlier than the HongKong investors’. Hong Kong and the United States market reaction to internal controldefect rectification measures are more cautious. In addition, the paper proposes somerecommendations to strengthen internal control defect information disclosure.According to the different market reaction of the internal control defect informationshowed by investors in different regions, as well as the impact factors of internalcontrol weaknesses disclosure, the paper advices that China’s regulatory authoritiesshould refine internal control information disclosure system, establish accountabilitysystem based on the disciplinary measures; management should improve internalcontrol defect disclosure initiative, play the lead role of the industry, and optimize themarket environment automatically; investors need to pay more attention to internalcontrol defect information which is disclosed on the overseas market and by themedia.