||Research on the Reporting Quality of Reverse Merger Companies
||Department of Accountancy
financial reporting quality
More and more companies choose to go public through reverse merger in recent years. From 2010, there are also break out some bad financial news of these reverse merger companies, especially the companies from China. To examine whether the financial reporting quality of these companies is really worse or not, this paper uses performance-adjusted discretionary accruals as a proxy to measure financial reporting quality. This paper finds that the financial reporting quality of reverse merger companies is really worse than other non-reverse merger companies, and the financial reporting quality of China reverse merger companies is also worse than other non-China reverse merger companies. The financial reporting quality of reverse merger companies audit by Big 4 is better than others audit by non-Big 4 audit firm. These findings will help to remind the public and the authorities pay more attention to these reverse merger companies. To reduce the suspicion of reverse merger, these companies should also pay more attention to the quality of their own financial statements.
2.LITERATURE REVIEW and Hypotheses Development 5
2.1 About Reverse Mergers 5
2.2 The Regulations for Reverse Merger Companies 5
2.3 The Motivations and Characteristics of Reverse Merger Companies 7
2.4 The Performance of Reverse Merger Companies 9
2.5 Financial Reporting Quality of Reverse Merger Companies 9
3.Research Design and Sample Selection 14
3.1 Measurement of Financial Reporting Quality 14
3.2 Methods of Empirical Tests 15
3.3 Sample Selection 17
4.EMPIRICAL RESULTS 21
4.1 Descriptive statistics 21
4.2 The relation between reverse merger companies and discretionary accruals 25
4.3 The relation between China reverse merger companies and discretionary accruals 28
4.4 The relationship among audit firm type, reverse merger companies and discretionary accruals 31
4.5 The relationship among audit firm type, China reverse merger companies and discretionary accruals 35
4.6 Additional Test 38
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