“Evidence Regarding the Internal Controls of U.S.-listed Chinese Firms” by Mrs. Michelle Rene LOWRY
Mrs. Michelle Rene LOWRY
PhD student in Accounting
School of Business
Faculty of Business and Economics
The University of Hong Kong
This study compares the Sarbanes-Oxley ineffective internal control disclosures (IICs) of U.S.-listed Chinese with those of U.S. domiciled firms. Applying the framework of Ashbaugh-Skaife, Collins and Kinney (2007) and matched sample analyses, we find that U.S.-listed Chinese firms report significantly more IICs than U.S. domiciled firms and that this finding holds for both Chinese firms that list by initial public offering (CIPOs) and reverse merger (CRMs). We further find that CRMs report more IICs than CIPOs and that U.S.-listed Chinese firms under-report IICs to a greater degree than U.S. domiciled firms. Corroborating descriptive evidence regarding the IIC types and auditors of U.S.-listed Chinese firms is also provided. To our knowledge, this is the first study to directly document the IICs of U.S.-listed Chinese firms, their differing incidence by listing type and the IIC types and auditors of U.S.-listed Chinese firms. These findings extend related research and help inform regulatory authorities, investors and other stakeholders regarding the internal controls and related disclosures for an eminent and contentious class of shares.