| dc.description.abstract | Cross listing has been identified as a determinant of accounting quality.
Prior empirical studies have differed on the effect of cross listing on accounting
quality in different jurisdictions. The study of accounting quality in East Africa has
however not incorporated the possible effect of cross listing. This research study
sought to establish the effect that cross listing may have on the accounting quality
of firms cross listed in East African stock exchanges. The study looked at three
accounting quality metrics of firms cross listed in East Africa, namely, earnings
management, timely loss recognition and value relevance of accounting
information. The earnings management model used was the Lang, Raedy and
Yetman (2003) earnings smoothing model. Timely loss recognition was
investigated using the Basu (1997) model while value relevance was tested using
the Lang, Raedy and Yetman (2003) model. These metrics were tested for
differences during a three year period prior to cross listing and a three year period
after cross listing. The firms selected for the study must have had their first
secondary listing on or before the year 2010 in the East African securities markets
for collection of adequate financial measures. Accounting quality metrics for a total
of eight cross listed East African companies were analyzed. This study shows that
earnings management did not occur around the cross listing dates. The value
relevance of information presented by the cross listed firms did not change
significantly, meaning that the ability of the summary accounting measures to
accurately reflect the underlying economic value of the firms studied still remained
as before the cross listing. There was no significant effect in terms of timely loss
recognition in light of bad news and no indication of better prudence in the
reporting of good news. It is clear from the study’s findings that cross listing does
not have an effect on the quality of reporting of firms cross listed within the East
African Securities Exchanges. These findings provide a thrust forward in the move
to achieve financial markets integration within the East African region, and cement
the importance of retaining the quality of information even where there is a wider
range of users of the information. | en_US |
