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The Cost of Potential Delisting of U.S.-Listed Chinese Companies

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Listed:
  • Al (Aloke) Ghosh

    (Turner School of Accountancy, Belk College of Business, University of North Carolina at Charlotte, Charlotte, NC 28223, USA)

  • Wei Wei

    (Turner School of Accountancy, Belk College of Business, University of North Carolina at Charlotte, Charlotte, NC 28223, USA)

Abstract

Because the PCAOB was unable to inspect audits of Chinese accounting firms until recently, regulators introduced legislation (HFCAA) potentially forcing Chinese companies to delist for non-compliance with PCAOB audit requirements. To understand the equity markets’ response to this legislation, we analyze the short-term (event study) and long-term stock performance of U.S.-listed Chinese firms relative to the stock performance of other foreign companies. We find that Chinese companies outperform other Asian firms for the Pre-HFCAA Period, but they underperform other Asian firms from the time the HFCAA was introduced (28 March 2019) until an agreement was reached (26 August 2022). For the post-agreement period (26 August 2022 to 31 December 2022), the performance of Chinese and other Asian stocks is similar. Between 28 March 2019 and 31 December 2022, a typical shareholder lost 76% of wealth, and, compared to other Asian companies, the losses were around 87%. The findings highlight the importance of regulatory compliance and transparency in maintaining investor confidence and protecting shareholders’ interests.

Suggested Citation

  • Al (Aloke) Ghosh & Wei Wei, 2024. "The Cost of Potential Delisting of U.S.-Listed Chinese Companies," JRFM, MDPI, vol. 17(8), pages 1-18, August.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:8:p:341-:d:1451609
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    References listed on IDEAS

    as
    1. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
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