The Cost of Potential Delisting of U.S.-Listed Chinese Companies

Al (Aloke) Ghosh () and Wei Wei
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Al (Aloke) Ghosh: Turner School of Accountancy, Belk College of Business, University of North Carolina at Charlotte, Charlotte, NC 28223, USA
Wei Wei: Turner School of Accountancy, Belk College of Business, University of North Carolina at Charlotte, Charlotte, NC 28223, USA

JRFM, 2024, vol. 17, issue 8, 1-18

Abstract: Because the PCAOB was unable to inspect audits of Chinese accounting firms until recently, regulators introduced legislation (HFCAA) potentially forcing Chinese companies to delist for non-compliance with PCAOB audit requirements. To understand the equity markets’ response to this legislation, we analyze the short-term (event study) and long-term stock performance of U.S.-listed Chinese firms relative to the stock performance of other foreign companies. We find that Chinese companies outperform other Asian firms for the Pre-HFCAA Period, but they underperform other Asian firms from the time the HFCAA was introduced (28 March 2019) until an agreement was reached (26 August 2022). For the post-agreement period (26 August 2022 to 31 December 2022), the performance of Chinese and other Asian stocks is similar. Between 28 March 2019 and 31 December 2022, a typical shareholder lost 76% of wealth, and, compared to other Asian companies, the losses were around 87%. The findings highlight the importance of regulatory compliance and transparency in maintaining investor confidence and protecting shareholders’ interests.

Keywords: PCAOB; U.S.-listed Chinese companies; stock returns; long-term performance (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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