Growth opportunities and earnings management by cross-listed and U.S. firms

Shrikant P. Jategaonkar (), Linda M. Lovata () and Xiaoxiao Song ()
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Shrikant P. Jategaonkar: Southern Illinois University Edwardsville
Linda M. Lovata: Southern Illinois University Edwardsville
Xiaoxiao Song: Southern Illinois University Edwardsville

Journal of Economics and Finance, 2023, vol. 47, issue 1, No 8, 157-183

Abstract: Abstract Using a sample of cross-listed and U.S. firms, we examine whether firms’ growth opportunities are associated with discretionary accruals and/or real activities management. While existing papers have reported mixed evidence for U.S. firms, we are the first to explicitly compare earnings management of cross-listed growth versus cross-listed value firms. Using the Tobin’s Q ratio as our proxy for growth opportunities, we compare earnings management by: (i) cross-listed growth versus cross-listed value firms, (ii) cross-listed growth versus U.S. growth firms, and (iii) cross-listed value versus U.S. value firms. We find significantly more management of discretionary accruals and real activities for cross-listed growth firms than the cross-listed value firms. In addition, the difference in earnings management between cross-listed and U.S. firms is concentrated in the growth firms, as there are no significant differences in earnings management between the cross-listed and U.S. value firms. Our findings have implications for analysts and investors interested in cross-listed firms. A better understanding of earnings management by firms with high or low growth opportunities can enable them to better assess the quality of earnings of these companies.

Keywords: Tobin’s Q; Cross-listed firms; Growth opportunities; Earnings management; Discretionary accruals management; Real activities management (search for similar items in EconPapers)
JEL-codes: M4 M41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s12197-022-09599-3

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