Cross-border regulatory enforcement and corporate voluntary disclosure

In this study, we find that foreign firms cross-listed in the US issue significantly more and better-quality management earnings forecasts after their home countries sign the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMoU), a nonbinding arrangement established by the International Organization of Securities Commissions to enhance the cross-border enforcement of securities laws. Specifically, we find that after the MMoU, relative to their domestic counterparts in the US, foreign firms cross-listed in the US are not only more likely to issue management earnings forecasts but also issue them more frequently. They also tend to issue better-quality earnings forecasts, as measured by lower surprise, higher precision, greater timeliness, more disaggregation, lower optimism and fewer errors. We find that the observed effects of the MMoU signing are stronger for cross-listed firms from countries with weaker institutional environments, resulting in greater enforcement concerns after the MMoU, and for firms with less foreign institutional ownership before the MMoU. Collectively, our findings support the conjecture that after a US-listed foreign firm's home country enters the MMoU, the firm has more incentives to engage in voluntary disclosure due to greater concerns about regulatory enforcement and increased information demand from investors.