Are investors always compensated for information risk? Evidence from Chinese reverse-merger firms

Yenn-Ru Chen (), Mi-Hsiu Chiang () and Chia-Hsiang Weng ()
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Yenn-Ru Chen: National Chengchi University
Mi-Hsiu Chiang: National Chengchi University
Chia-Hsiang Weng: Hong Kong Polytechnic University

Review of Quantitative Finance and Accounting, 2019, vol. 52, issue 1, No 5, 159-196

Abstract: Abstract Using a data sample of 93 Chinese reverse-merger (CRM) firms listed in the U.S. over the period from 2000 to 2011, we find supporting evidence of poorer financial reporting quality exhibited by CRM firms relative to their respective US counterparts. Our main result indicates that while poor financial reporting quality induces information risk/asymmetry, higher (lower) information risk fails to be associated with higher (lower) expected returns. In contrast with prior studies that document information risk as non-diversifiable and a priced risk factor, the value relevance of the CRM firms’ financial reporting quality, in terms of information asymmetry-based premiums, is found to be remote.

Keywords: Information risk; Financial reporting quality; Reverse mergers; Valuation (search for similar items in EconPapers)
JEL-codes: G14 G34 M41 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s11156-018-0706-9

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