More from the Author

• Working Paper | HBS Working Paper Series | 2012

  Securities Litigation Risk for Foreign Companies Listed in the U.S.

  Beiting Cheng, Suraj Srinivasan and Gwen Yu

  We study securities litigation risk faced by foreign firms listed on U.S. exchanges. We find that U.S. listed foreign companies experience securities class action lawsuits at about half the rate as do U.S. firms with similar levels of ex ante litigation risk. The lower rate appears to be driven partly by higher transaction costs in uncovering and pursuing litigation against foreign firms. However, once a lawsuit triggering event like an accounting restatement, missing management guidance, or a sharp stock price decline occurs, there is no difference in the litigation rates between a foreign and comparable U.S. firm. This suggests that effective enforcement of securities laws is constrained by transaction costs, and the availability of high quality information that reveals potential misconduct is an important determinant of a well-functioning litigation market for foreign firms listed in the U.S.

  Keywords: Litigation Risk; Cross Listing; bonding; 10b-5; Securities Litigation; U.S.Listing; Class Action;

  Citation:

  Cheng, Beiting, Suraj Srinivasan, and Gwen Yu. "Securities Litigation Risk for Foreign Companies Listed in the U.S." Harvard Business School Working Paper, No. 13–036, October 2012.

  CiteView DetailsSSRN

  Related

• Working Paper | HBS Working Paper Series | 2012

  Admitting Mistakes: Home Country Effect on the Reliability of Restatement Reporting

  Suraj Srinivasan, Aida Sijamic Wahid and Gwen Yu

  We study the frequency of restatements by foreign firms listed on the U.S. exchanges. We find that the restatement rate by U.S. listed foreign firms is significantly lower than that of comparable U.S. firms and the difference depends on the home country characteristics of the foreign firm. Foreign firms from countries with a weak rule of law are less likely to restate than firms from strong rule of law countries are, despite companies from the weaker rule of law countries having higher levels of earnings management. After controlling for the materiality of the restatement, firms from weak rule of law countries are more likely to opt for less visible restatement disclosure methods. We interpret these findings as home country enforcement affecting firms' likelihood of reporting existing accounting irregularities. This suggests that for U.S. listed foreign firms, less frequent restatements can be a signal of opportunistic reporting rather than high quality earnings.

  Keywords: Accounting restatements; earnings management; home country enforcement;

  Citation:

  Srinivasan, Suraj, Aida Sijamic Wahid, and Gwen Yu. "Admitting Mistakes: Home Country Effect on the Reliability of Restatement Reporting." Harvard Business School Working Paper, No. 13–034, October 2012.

  CiteView DetailsSSRN

  Related

• Working Paper | HBS Working Paper Series | 2012

  Causes and Consequences of Linguistic Complexity in Non-U.S. Firm Conference Calls

  Francois Brochet, Patricia Naranjo and Gwen Yu

  We examine the determinants and capital market consequences of linguistic complexity in conference calls held in English by non-U.S. firms. We find that linguistic complexity is positively associated with the language barrier in the firms' home country. Also, linguistic complexity in firms' conference calls affects the extent to which the capital market reacts to the information releases. Firms with more linguistic complexity in their conference calls show less trading volume and price movement following the information releases, after controlling for the actual earnings news. Further, the capital market's response to linguistic complexity is more pronounced when there is greater implicit (as captured by the presence of foreign investors) or explicit (as captured by how actively analysts ask questions) demand for the English conference calls. This suggests that the form in which financial information is presented can impose additional processing costs by limiting investors' ability to interpret the reported financials.

  Citation:

  Brochet, Francois, Patricia Naranjo, and Gwen Yu. "Causes and Consequences of Linguistic Complexity in Non-U.S. Firm Conference Calls." Harvard Business School Working Paper, No. 13–033, October 2012.

  CiteView DetailsSSRNRead Now

  Related