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Are investors always compensated for information risk? Evidence from Chinese reverse-merger firms

Author

Listed:
  • Yenn-Ru Chen

    (National Chengchi University)

  • Mi-Hsiu Chiang

    (National Chengchi University)

  • Chia-Hsiang Weng

    (Hong Kong Polytechnic University)

Abstract

Using a data sample of 93 Chinese reverse-merger (CRM) firms listed in the U.S. over the period from 2000 to 2011, we find supporting evidence of poorer financial reporting quality exhibited by CRM firms relative to their respective US counterparts. Our main result indicates that while poor financial reporting quality induces information risk/asymmetry, higher (lower) information risk fails to be associated with higher (lower) expected returns. In contrast with prior studies that document information risk as non-diversifiable and a priced risk factor, the value relevance of the CRM firms’ financial reporting quality, in terms of information asymmetry-based premiums, is found to be remote.

Suggested Citation

  • Yenn-Ru Chen & Mi-Hsiu Chiang & Chia-Hsiang Weng, 2019. "Are investors always compensated for information risk? Evidence from Chinese reverse-merger firms," Review of Quantitative Finance and Accounting, Springer, vol. 52(1), pages 159-196, January.
    • Handle: RePEc:kap:rqfnac:v:52:y:2019:i:1:d:10.1007_s11156-018-0706-9
    DOI: 10.1007/s11156-018-0706-9
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    More about this item

    Keywords

    Information risk; Financial reporting quality; Reverse mergers; Valuation;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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