Capital market consequences of cultural influences on earnings: The case of cross-listed firms in the U.S. stock market |
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| Institution: | 1. Gadjah Mada University, Indonesia;2. University of Sydney, Australia;1. Department of Accounting, Faculty of Economics and Business, Universitas Gadjah Mada (Center for Management Accounting Studies and Micro, Small, and Medium Enterprises), Jalan Sosio Humaniora 1, Bulaksumur, Yogyakarta 55281, Indonesia;2. Macquarie Business School, Macquarie University, 4 Eastern Road, Macquarie Park, NSW 2109, Australia |
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| Abstract: | We examine whether market reactions to earnings announcements vary according to differences in the cultural values of firms' countries of origin in the case of cross-listed firms in the U.S. stock market. To deal with time-varying volatility returns, market reactions are determined using the market model adjusted for GARCH. We also apply the Fama-French three factor model to determine market reactions. Using the dynamic panel generalized method of moments estimator, we analyze 5562 firm-year observations from 30 countries over the period 2000–2014. We find that market reactions to the earnings announcements of cross-listed firms are significantly negatively (positively) associated with firms’ home countries characterized by the culturally- based accounting values of conservatism (optimism) and secrecy (transparency). Overall, the results suggest that the informal institutional influences of culture relating to the financial performance of cross-listed firms are priced by the U.S. stock market. |
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