臺大管理論叢 NTU Management Review VOL.30 NO.2

The Effects of Relaxing the Reconciliation Requirement in Foreign Private Issuers’ SEC Filings on Earnings Management Strategies: IFRS Adopters versus U.S. GAAPAdopters 118 7.8 Earnings Management Strategies among Various Groups of Non-U.S. Firms To understand whether earnings management strategies differ among various groups of non-U.S. cross-listed firms that are subject to the SEC’s decision to waive the reconciliation requirement, we re-estimate equations (6) and (7) after including four types of firms as control groups: (1) firms that voluntarily switch to either U.S. GAAP or IFRS after the change, (2) firms that voluntarily adopt U.S. GAAP/IFRS prior to the change and maintain their filing choice afterward, (3) firms that domicile in countries that adopt U.S. GAAP/IFRS on a mandatory basis, and (4) firms that apply non-U.S./non-IFRS domestic standards after the elimination. However, the only non-U.S. firms required to use U.S. GAAP by their home jurisdiction are domiciled in Marshall Islands. Out of these mandatory U.S. GAAP adopters , all but one firm fall within the deep-sea foreign transportation of freight industry (i.e., SIC 4412), and none of them are in a high litigation industry (i.e., SIC 2833-2836, 3570-3577, 3600-3674, 7370-7379, and 8731-8734). Due to a fairly uneven industry distribution and a zero value for LTGN it for mandatory U.S. GAAP adopters, we do not include this type of firms as one of the control groups in the regression analyses. On top of that, this paper is intended to capture the real effect of Securities Act Release No. 33-8879 which permits IFRS reporting for non-U.S. firms. Accordingly, we present four categories of non-U.S. cross-listed firms (excluding U.S. GAAP firms and their matched domestic firms) in the regression equations by including three dummy regressors, employing the following coding scheme: 29.30 29 Groups A, B, C, D consist of 83, 116, 118, and 83 firm-year observations that voluntarily switch to IFRS after the regulatory change, that voluntarily adopt IFRS prior to 2007 and maintain their filing choice afterward, that are required to use IFRS by their home jurisdiction, and that apply domestic standards and are selected as a match for the firms in Group A, respectively during our sample period 2007-2010. 30 Firms that are required to use IFRS by their home jurisdiction can be classified into two groups: (1) those (i.e., 318 firm-year observations) that mandatorily adopt IFRS prior to the reconciliation elimination and (2) those (i.e., 118 firm-year observations) that mandatorily change their filing choice to IFRS after the regulatory change. Because the 2SLS regression results (not reported) for the simultaneous equations (6) and (7) estimated on these sub-samples are qualitatively similar, we use the latter to represent the mandatory IFRS observations.