Consistency of Accounting Policy Choices by Companies that are "Joined at the Hip"

• In Event: Emerging Research and Research Interaction 1

Abstract

Dual-listed companies (DLC) are strange, rather anomalous units that appear to function as a single firm even though they are composed of two separate legal entities. They maintain discrete structures and stock-exchange listings. Since virtually all DLCs are cross-border operators, there are expected to be advantages that range from tax sheltering (through lower rates and inter-company income/expense shifting) to managerial improvements (one management team and corporate mission/focus). At no time since 1990 have there ever been more than 50 of these unusual entities in existence during a single year.

In a conventional corporate re-alignment through merger/acquisition, combining firms form a single legal entity. The former firms’ ownership is combined—whether or not the management and/or operations are—and the public trading exchange listing becomes a singularity. When a DLC comes into existence, it is through an “equalization agreement” that allows an integrated, but separate, management structure somewhat like a joint venture. A DLC “looks like” a general partnership formed by two publicly held companies; there is, though, a single board of directors and full managerial team integration.

This research seeks to develop new empirical results to answer a basic question: Do the separate firms that form a DLC converge their accounting policy choices at the time they are “joined at the hip”? In other words: Do separate accounting units that operate as a “single company” opt to be consistent in their selection of accounting recording/reporting policies?

Data to answer the fundamental research inquiry posited here is obtained through collection of both external public financial disclosures and stock exchange reporting information. These data are used to assess whether companies like Reed Elsevier, BHP Billiton, Unilever, Carnival Corporation/plc, and Royal Dutch Shell have accounting policy agreement or discord between their co-joined units. This is an important question that has not be addressed at all in the extant accounting or finance literature.

Author

• A J Stagliano, Saint Joseph University