The impact of cross-listing on earnings management and its economic consequence: evidence from China

ABSTRACTThis study empirically examines the effect of cross-listing on earnings management and its economic consequences using A + H cross-listed company data from China. Considering both accrual-based earnings management (AEM) and real earnings management (REM) and modifying reported performance to obtain true performance, we use path analysis to find that cross-listing can reduce AEM, thereby damaging firm performance, and can reduce REM, thereby benefiting firm performance. We further examine the mechanism of benefit of earnings management. The results reveal that AEM can maintain debt contract efficiency and REM plays a role in signaling better performance.