Spillover Effects of SEC Scrutiny: Evidence from the Audit Oversight Dispute in China

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  In Paper Session: Table 4: Impact of Regulation

Abstract

This study investigates the perceived increase in doubt about Chinese audit credibility on U.S. multinationals with Chinese operations. Specifically, we examine market reactions to nine events associated with the SEC pursuit of Chinese audit oversight. We predict and find increased concerns, reflected in significantly negative market returns surrounding these events, not only for U.S.-listed Chinese firms, but also U.S. multinationals’ with Chinese operations. The economic effects appear significant, reflecting an on average decrease in market value exceeding $165 million (or 2.6%) across the event dates. We further find the spillover effect is stronger for firms having investors likely to have been unaware of the concerns about Chinese financial information quality prior to the SEC–China dispute.

Authors

• Bingyi Chen, Boston University

• Jenelle Conaway, Boston University