Journal of Applied Finance & Banking

Accounting vs. Politics: Effects of China-US Audit Cooperation on China Concept Stocks

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• Abstract

   

  Since 1993, Chinese companies have entered the US capital market, becoming a crucial platform for their public listing and fundraising. However, inconsistent accounting policies between China and the US have resulted in the delisting of certain China Concepts Stocks (CCS) in the US. Nonetheless, the recent accounting review cooperation agreement between the China Securities Regulatory Commission and the US PCAOB has altered the future prospects of CCS in the US. This study aims to quantify the economic value of this bilateral collaboration using the Audit Supervision Cooperation Agreement, signed by China and the US on August 26, 2022, as a natural experiment. Our findings reveal that in the three months following the agreement, CCS with political connections and accounting issues related to the Chinese government exhibited returns of 4.63% and 1.13% respectively. We conducted robustness tests including parallel trend tests, experimental and control groups based on VIE architecture interference, and sub analysis samples and placebo tests. Additionally, trading volume and price volatility of politically affiliated companies also experienced positive effects. In conclusion, our study underscores the significant impact of the political friendship between China and the US on the economic development of both nations and the global economy.

   

  JEL classification numbers: F42, G14, G15.

  Keywords: Political connections, Chinese concept stock, Accounting collaboration.