Earnings Management, Country Governance, and Cross-listing Evidence from Latin America

We investigate whether Latin American firms cross-listed in the United States are associated with improved earnings quality and reduced information asymmetry. We find a negative relation between earnings management and cross-listing. We also find that firms from countries with stronger governance have lower earnings management. In contrast, the relationship between cross-listing and information asymmetry is not significant. Thus, local investors are not better protected when the firm is cross-listed abroad. They are, however, better protected when their home country has stronger governance. Our results evidence the importance of country governance on the information and trading environment of Latin American firms. From a policy-making standpoint, our results indicate that efforts and resources are well spent when pursuing an enhanced governance environment at home.