Question

Suppose that a foreign company plans to crosslist its shares on a U. S. securities exchange. The company currently uses local GAAP. Before applying for crosslisting, it plans to switch its current and future financial statements to IASB GAAP for reporting in its home country to improve the likelihood that its application will be approved. The company is based in a country with weak institutional structures, but wishes to signal its commitment to high-quality reporting and high corporate governance standards.

Required
a. Explain why crosslisting is a credible signal of this commitment.
b. What are the higher costs that a company from a country with weak institutional structures to support capital markets and protect investors would face if it switches to IASB GAAP for reporting in its home country?



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  • CreatedSeptember 09, 2014
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