Cross Listing, Bonding Mechanism And Earning Qualities

With the development of enhanced degree of internationalization and the worldeconomy, cross listing has become a hot topic of research at home and abroad. But thestudy of the bonding mechanism in cross listing in China is still rare. In this article, we usepair-matched method to compare the role of cross listing in improving earning qualities ofAH-share companies and A-share companies, further more, we explore the existence andworking form of bonding mechanism in cross listing, and we also study the role of crosslisting in state-owned and non-state-owned companies at the same time.Specifically, we select the non-financial listed companies those both issue A sharesand H shares and those only issue A shares in Mainland from2005to2010for the sample,using Basu model, level and changes of earnings model, price model and earningmanagement model, from the perspective of accounting conservatism, value relevance andthe degree of earning management respectively, we compare the earning qualities ofAH-share companies and A-share companies. The findings show that:(1) The earningsquality of AH-share listed companies are better than A-share companies those which onlylisted in domestic exchanges, that is, bonding mechanism of Chinese enterprises thosecross listed do exist, and it can improve the earning quality of the company;(2) There aredifferences for the effect between the state-owned enterprises and non-state-ownedenterprises which list overseas, and the effect is more significant for non-state-ownedenterprises. Above all, we believe that the Chinese inland companies who cross list inHong Kong, a market with the more comprehensive legal regulation and market constraints,can change their earning qualities reported according to national accounting standard.Thereby, this shows that cross listing can bond enterprises themselves with the moresophisticated legal and market surveillance together.