Intangible investments and voluntary delisting: Mass exodus of Chinese firms from US stock exchanges

Drawing on a cost-benefit perspective, this paper explores the relation between information asymmetry and the decision to delist from stock exchanges during periods of uncertainty. Specifically, it investigates the role of firms’ intangible investments and the availability of alternative sources of finance on the decision to delist from foreign stock markets. Based on a sample of Chinese firms listed on US stock markets and a multivariate probit regression which accounts for fixed-effects, the paper models firms' decision to delist as a function of the level of information asymmetry between firms and their stakeholders (proxied by the intangible assets), and the availability of alternative financing, while controlling for other drivers of firms’ delisting decision. There is a significant positive relationship between investments in intangible assets and firms’ decision to delist. Moreover, the evidence suggests that the positive intangibles-delisting nexus is accentuated by the availability of alternative sources of financing. Collectively, our results are consistent with the theoretical argument that the higher information asymmetry associated with intangible assets may increase the cost of staying listed on stock exchanges, particularly, in periods of uncertainty (captured in this study by accounting fraud allegations targeting cross-listed firms). Policy makers and standard setters must continue to work to improve the accounting regulations of intangible assets and to promote the adoption of global accounting standard across both emerging and advanced economies. The study exploits a unique natural experimental setting to explore why cross-listed firms delist. The underlying theoretical framework to explain delisting is new. This framework captures the role of information asymmetry, uncertainty and alternative financing in explaining the cost and benefits of remaining listed on a foreign market