Do US cross-listings, IFRS adoption and domestic investor protection impact earnings management?

Purpose This paper investigates the impact of International Financial Reporting Standards (IFRS) adoption and domestic investor protection on the relationship between United States (US) cross-listing and earnings management. Design/methodology/approach The paper applies ordinary least squares (OLS) regression analyses to a matched sample of cross-listed and non-cross-listed firms from 2000 to 2018, covering 38 countries. Findings We find that US cross-listed firms have lower real earnings management. The results also show that real earnings management is lower for US cross-listed firms that adopt IFRS and from high domestic investor protection countries. Our results further show that real earnings management is higher when cross-listed firms use Level 1 American Depository Receipts (ADRs) to cross-list but adopting IFRS and high domestic investor protection help reduce real earnings management. Using the SEC’s Rule 12h-6 as a quasi-natural experiment, we document that post-12h-6 Rule, firms in high domestic investor protection countries experience a reduction in both accruals and real earnings management. However, the result is the opposite in countries with low investor protection. Originality/value Our findings have implications for regulators and policymakers on the impact of ADR levels and Rule 12h-6 on earnings management.