Earnings conservatism and equity raising of cross-listed firms

Martien Lubberink, Lancaster University
Carel Huijgen, University of Groningen

ABSTRACT. We examine conditional accounting conservatism for UK firms cross-listed in the US that raise equity capital versus conservatism of companies that do not. We expect that equity issuing firms exhibit high levels of conservatism since they face important reputation and litigation consequences. To mitigate confounding effects from debtholders’ demand for conservative accounting, we control for debt-raising activities of our sample firms.

Using data on equity deals during 1994-2005, our results show that firms that issue equity capital have more conservative earnings than comparable firms that do not. Moreover, firms that exclusively raise capital through equity issues are significantly more conservative than firms issuing solely debt. Our evidence suggests that firms provide verifiable earnings information to investors to deal with information asymmetries that arise in issuing equity in an efficient way.

Full-Text is no longer available online. Please contact the author(s) for more information about this manuscript.

Back to Session Listing