Do cross-listed firms provide the same quality disclosure as US firms? Evidence from the internal control deficiency disclosure under Section 302 of the Sarbanes-Oxley Act

We test whether cross-listed firms provide the same quality disclosure as US firms by examining the internal control deficiency (ICD) disclosure under Section 302 of the Sarbanes-Oxley Act. We hypothesize that cross-listed firms are less likely than US firms to truthfully disclose the existence of an ICD. Consistent with this hypothesis, we find that the documented association between ICD disclosure and poor earnings quality for US firms becomes weaker for cross-listed firms, especially for those domiciled in weak investor protection countries. In addition, the likelihood of disclosing an ICD is lower for cross-listed firms that are domiciled in weak investor protection countries and whose management enjoys significant private benefits of control. Our results suggest that cross-listed firms' ICD disclosure under Section 302 is of lower quality than that of US firms.