Governance tensions in MNCs’ accounting quality
Tiemei Li (tmsl@telfer.uottawa.ca),
Michel Magnan (michel.magnan@concordia.ca) and
Yaqi Shi (yshi@ivey.ca)
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Tiemei Li: University of Ottawa
Michel Magnan: Concordia University
Yaqi Shi: Western University
Journal of International Business Studies, 2022, vol. 53, issue 8, No 4, 1669 pages
Abstract:
Abstract This study investigates how the institutional complexity of a multinational corporation (MNC) impacts its accounting quality. Toward that end, we employ a unique sample of MNCs registering subsidiaries in offshore financial centers (OFCs). Our focus is the tension between external governance mechanisms (i.e., US cross-listing, home-country institutional context) and internal governance mechanisms (OFC subsidiaries). Consistent with the corporate governance bonding hypothesis, we show that cross-listed MNCs exhibit higher accounting quality compared to non-cross-listed MNCs. However, the positive association between cross-listing and accounting quality is negatively moderated by an MNC’s choice of OFC subsidiaries, thereby suggesting that the internal governance mechanisms of MNCs interact with external mechanisms to impact its accounting quality. Moreover, an MNC’s OFC choice negatively moderates the relationship between home-country governance and accounting quality, thus lending further support to corporate governance arbitrage hypothesis. Our study underscores, to regulators and investors concerned about opportunistic earnings management, the importance of enhancing monitoring efforts for MNCs with opaque and complex governance that exhibits international mobility.
Keywords: multinational corporations (MNCs); accounting quality; offshore financial centers (OFCs); corporate governance bonding hypothesis; institutional complexity theory; corporate governance arbitrage hypothesis (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:pal:jintbs:v:53:y:2022:i:8:d:10.1057_s41267-022-00514-w
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DOI: 10.1057/s41267-022-00514-w
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