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

: 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

The annual financial statements (10-K) of public companies listed on the U.S stock exchanges must be filed with the U.S. Securities and Exchange Commission (SEC), and these statements are required to be audited by public accounting firms registered with the Public Company Oversight Board (PCAOB).In turn, the PCAOB inspects the audits of accounting firms to assess compliance with various rules, regulations, and professional standards in connection with the accounting firm's performance of audits and issuance of audit reports. 3This inspection requirement includes accounting firms domiciled in the U.S. and in foreign jurisdictions.To facilitate audit inspections of non-U.S.auditors, PCAOB previously had formal cooperative arrangements with all foreign audit regulators to allow such inspections with the sole exception of an agreement with China.Until recently, China's Securities and Regulation Commission (CSRC) refused to allow PCAOB to inspect audits of U.S.-listed Chinese firms completed by Chinese accounting firms.
Chinese law restricts auditors from transferring certain company-specific financial information out of the country, thereby limiting its visibility to U.S. regulators (Reuters 2022).
Because of these restrictions, PCAOB maintains that many large Chinese companies (e.g., Baidu, China Mobile, PetroChina, the Semiconductor Manufacturing International Corporation) are not complying with U.S. standards (New York Times, 2020).Regulators maintain that the lack of transparency in the Chinese financial system puts American investors at risk of fraud.Because of the impasse, the U.S. Senate passed the Holding Foreign Companies Accountable Act (HFCAA 2020) that would require that: (1) U.S.-listed Chinese companies disclose more information about ties to foreign governments and the Chinese Communist Party, and (2) a company be removed from a U.S. exchange if for three consecutive years that company does not provide PCAOB access to audit information. 4However, two years after the passage of HFCAA (August 2022), the PCAOB and the Chinese government (CSRC and Chinese Ministry of Finance) agreed to allow the PCAOB to inspect the audits of U.S.-listed Chinese companies.
Between March 28, 2019 (starting date for the HFCAA bill) and the PCAOB-China agreement (August 26, 2022)), there was a realistic threat of U.S.-listed Chinese companies being delisted.What was the cost to U.S. shareholders because of this non-compliance with U.S. regulations?Moreover, the losses investors incurred during this period may not be fully recovered even after the PCAOB-China agreement for two reasons.First, given the prior history, it remains unclear whether the PCAOB-China agreement is a permanent solution.If not, there still remains a non-trivial likelihood that the Chinese companies may get delisted.Second, PCAOB (2023) inspections of Chinese audit firms indicate serious audit deficiencies, raising questions about the financial reporting quality of Chinese companies.
If the stock market estimates that the cost of delisting is high for U.S.-listed Chinese companies during the test periods (HFCAA Legislative Period and Effective Period), or that there are concerns with the reliability of financial statements of these companies because of poor audit quality, we expect the stock market to incorporate this information into the stock price.
We assess the relative performance by comparing the stock performance of U.S.-listed Chinese companies with that of other Asian companies listed on U.S. stock exchanges.
We find that U.S.-listed Chinese stocks (CHINESE) outperform other U.S.-listed Asian stocks (OTHER-ASIAN) for the Pre-HFCAA Period.The difference between the two groups is economically and statistically significant.CHINESE stocks returns are more than three times that of OTHER-ASIAN stocks.However, the results are starkly different for the HFCAA Legislative and HFCAA Effective Periods.CHINESE stocks underperform OTHER-ASIAN stocks for both the Periods.For the HFCAA Legislative Period, the mean (median) CHINESE stocks return is about -10% (-24%), while the corresponding numbers for the OTHER-ASIAN stocks are about 33% (18%).For the HFCAA Effective Period, the mean (median) CHINESE stocks return is about -51% (-64%), while the corresponding numbers for the OTHER-ASIAN stocks are -10% (10%).However, following the PCAOB-China Agreement Period, the stock performance of CHINESE and of OTHER-ASIAN companies are indistinguishable.These results suggest that the losses incurred by U.S. shareholders from owning CHINESE stocks when there was a material likelihood of these companies being delisted (Legislative and Effective Periods) were not recovered following the PCAOB-China agreement.
For the HFCAA Legislative and Effective Periods, the returns generated by Chinese stocks that are traded on the Shanghai Stock Exchange (SHANGHAI) mimic those of OTHER-ASIAN firms (see Figures 3 and 4).This further supports our inference that the underperformance of U.S.-listed Chinese firms is linked to the potential delisting from U.S.-stock exchanges and not to factors that are associated with Asian/Chinese companies (e.g., the effect of COVID on Chinese companies).
Because our results may be attributable to differences in risk, we perform two additional tests.First, we examine the difference in stock performance after controlling for the following risk factors: (1) BETA, estimated from the market model, as a proxy for systematic risk, (2) LEVERAGE (debt to total assets) as a proxy for financial risk, (3) BOOK-MARKET (book value of equity to market value of equity) as a proxy for default risk, ( 4) FFI (Fama-French Industry) as a proxy for industry specific return differences.Our regression results are consistent with the univariate findings.Controlling for the four risk proxies, CHINESE stocks outperform OTHER-ASIAN stocks for the Pre-HFCAA Period but underperform the benchmark companies for the HFCAA Legislative and HFCAA Effective Periods.Second, we replicate the results using the Fama-French (1993) Three-Factor model.We continue to find that CHINESE stocks underperform OTHER-ASIAN stocks for the HFCAA Legislative and HFCAA Effective Periods.
Finally, we analyze the combined period when there was a material threat of delisting (HFCAA Legislative and HFCAA Effective Periods) relative to the period when this threat was eliminated (PCAOB-China Agreement Period).We find that CHINESE stocks underperform OTHER-ASIAN stocks for the combined period and the loss of wealth to U.S. shareholders holding Chinese stocks is staggeringly large.Using the mean (median) number, our estimates suggest that a typical U.S. shareholder holding Chinese stocks during the combined period lost about 46% (76%) of value.During the same period, other Asian stocks earned about 15% (11%).
Therefore, CHINESE stocks underperform OTHER-ASIAN stocks by about 61% (87%) for the combined period.This paper contributes to the literature by providing a better understanding of the economic effects of non-compliance with PCAOB inspections.Although the PCAOB-China Agreement allows PCAOB to inspect the audit completed by Chinese audit firms, whether these inspections will lead to an improvement in the quality of Chinese audits in the near term is uncertain.For instance, in its recently released Inspection Reports for Mainland China and Hong Kong audit firms, PCAOB (2023) finds unusually high rates of audit deficiencies.Also, it is unclear that whether investors believe the PCAOB-China Agreement will withstand the test of time.Therefore, while the inspections are expected to lead to improvements in the integrity of financial statements of U.S.-listed Chinese firms, assuming that the agreement is not annulled, U.S. shareholders may need to hold for a longer horizon to recover some of their losses.Also, the stock market reaction results suggest that investors have doubts whether the PCAOB-China Agreement is a permanent solution.
Ultimately, the findings emphasize the significance of regulatory compliance, transparency, and the role of regulatory bodies like the PCAOB in maintaining investor confidence and safeguarding shareholders' interests.The insights gained from this research can inform decisionmaking processes, shape financial reporting practices, and facilitate cross-border investments.As Chinese firms continue to navigate the regulatory landscape, it is imperative to recognize and address the challenges and consequences associated with regulatory compliance, ultimately to foster a more robust and resilient global financial market.

Holding Foreign Companies Accountable Act (HFCAA 2020)
Under the Sarbanes-Oxley Act (2002), PCAOB is required to inspect registered public accounting firms.According to PCAOB, inspections are intended to assess compliance with the Sarbanes-Oxley Act, the rules of the Board, the rules of the Securities and Exchange Commission (SEC), and professional standards, in connection with the firm's performance of audits, issuance of audit reports, and related matters involving U.S. public companies.However, until recently, the PCAOB had been unable to fully inspect the audit papers and other documents of accounting firms domiciled in mainland China and Hong Kong.The China Securities Regulatory Commission had contended for more than a decade that, while it is prepared to cooperate with the U.S. on matters related to audit inspections by PCAOB, it prohibited the Board's access to information related to China's security and other interests.
Regulators contend that PCAOB's inability to inspect Chinese audit firms posed serious risk to US investors who have been significantly increasing their exposure to U.S.-listed Chinese companies in the last 10 years.Precipitated by Luckin Coffee's disclosure of a massive financial fraud, 5 the U.S. Senate's Committee on Banking, Housing, and Urban Affairs embarked on a bill (Holding Foreign Companies Accountable Act, HFCAA) from March 28, 2019 requiring: (1) certain issuers of securities to establish that they are not owned or controlled by a foreign government, (2) an issuer must make this certification if the PCAOB is unable to audit specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the board, and (3) if PCAOB is unable to inspect the issuer's public accounting firm for three consecutive years, the issuer's securities are banned from trading on a national exchange or through other methods.This Senate bill was passed by unanimous consent on May 20, 2020.The bill was then considered by the House of Representatives and approved without any objections on 5 A Chinese rival to Starbucks, Luckin Coffee raised nearly a billion dollars through debt and equity issuance in the U.S. in 2019.According to the SEC (2020) complaint, between April 2019 and January 2020, Luckin Coffee intentionally fabricated more than $300 million in retail sales by using related parties to create false sales transactions through three separate purchasing schemes.Some employees at the company attempted to conceal the fraud by inflating the company's expenses by more than $190 million, creating a fake operations database, and altering accounting and bank records to reflect the false sales.Following these disclosures, the company's stock price fell by around 80%. and with a focus on any audit areas believed to be of greater complexity or significance, or to pose a heightened risk of material misstatement to the issuers' financial statements.According to the PCAOB, the Chinese regulatory authorities or the firms did not have any input or influence over the selections.
On May 10, 2023, the PCAOB (2023) released its 2022 Inspection Reports for Mainland China, Hong Kong Audit Firms.The PCAOB inspected a total of eight engagements, four at each of the two firms, including the types of engagements-such as state-controlled companies and corporations in sensitive industries-that China blocked access previously.The inspections found Part I.A deficiencies in four out of four of the audits reviewed at KPMG Huazhen, which is a 100 percent rate, while the rate of deficiency was 75 percent at PwC Hong Kong, or three out of four audits reviewed.Even on a relative basis, these deficiency rates are much higher than the deficiency rates associated with the US Big 4 audit firms (typically ranging between 20% to 35%).Therefore, as Figure 1

Data
Our data are collected from several sources.Stock trading data are obtained from the Center for Research in Security Prices (CRSP).We obtain information about Chinese companies listed on major U.S. stock exchanges from the U.S.-China Economic and Security Review Commission website. 7As of January 9, 2023, there were a total of 252 Chinese companies listed on these U.S. exchanges with a total market capitalization of $1.03 trillion.According to the website, as of January 9, 2023, 137 Chinese companies, representing 99 percent of the market capitalization of Chinese companies listed on these exchanges, used auditors from those jurisdictions.Our control sample consists of Asian companies listed on U.S. stock exchanges (other than U.S.-listed companies from China and Hong Kong).We obtain this list of companies from Stock Market MBA, an educational website whose mission is to provide the best online education on the stock market. 8Data required to estimate the Fama and French (1993)  As Panel B of Table 1 shows, because of stock price data requirements, our sample consists of 104 (32) CHINESE (OTHER-ASIAN) companies for the Pre-HFCAA Period,103 (31) for the HFCAA Legislative Period, 117 (30) for the HFCAA Effective Period, and 129 (31) for the PCAOB-China Agreement Period.

Short-term Performance (Event Study)
We examine the stock market reaction to the announcement of the various stages of the HFCAA legislative process (events).Specifically, we compute cumulative abnormal returns (CAR) around a five-day event window for the following dates: (1) the introduction of HFCAA at the Senate (March 28, 2019), (2) passing of the HFCAA at the Senate (May 20, 2020), (3) passing of the HFCAA by the House of Representatives (December 2, 2020), (4) HFCAA becomes the law on the day it is signed by the President (December 18, 2020), and (5) China and PCAOB reach an agreement to allow inspections (August 26, 2022).
We compute CAR in two ways.CAR1, measured over five-days around an event window (-2 to +2), is defined as follows.
where CRi,t is the daily stock return of Chinese firm i on day t, and EWRETDt is CRSP equally weighted return on day t, our proxy for market returns.Similarly, we measure CAR2 over five days around an event as follows.
where ARt is the mean of daily stock returns of OTHER-ASIAN firms on day t.Therefore, CAR1 is market adjusted cumulative abnormal returns, while CAR2 is control firm adjusted cumulative abnormal returns.

Long-term Performance
Because the likelihood of potential delisting of Chinese firms may be uncertain during these event times and the market may process the information over a longer period, we also measure long-term stock performance using buy-and-hold raw stock returns (CRET).CRET for firm i is computed using daily raw returns (R) compounded for the holding period (t) beginning from 0 to T as follows.
To control for risk, we also examine the long-run underperformance after controlling for four risk proxies.BETA measures systematic risk which is estimated from the market model by regressing daily stock returns on market returns where CRSP equally weighted returns (EWRETD) is the proxy for market returns.LEVERAGE measures financial risk estimated as the book value of total debt to the book value of total assets.BOOK-MARKET measures default risk estimated as the book value of equity to the market value of equity.FFI represents the five Fama-French industries.CHINESE is dummy variable which equals 1 when firm i is domiciled in mainland China or Hong Kong, else zero.
Finally, we also examine the long-run underperformance based on the Fama and French (1993) three-factor model using their calendar time portfolio approach to estimate the model.
Specifically, we generate daily portfolio returns for CHINESE firms ( ,-./010 ) and for OTHER-ASIAN firms (  2'-03451.5/).The difference between the two portfolios (  ,-./010 −  2'-03451.5/) is the dependent variable.The independent variables are MARKET, SMB, and HML which are directly downloaded from the Ken French's website.10Specifically we estimate the following regression.

Short-term Performance
(-63.94%).For OTHER-ASIAN firms, the corresponding number is -9.85% (-9.73%).The difference between the two groups of firms is again statistically and economically significant.
Our results suggest that using mean (median) as a benchmark, a typical non-Chinese Asian company listed on a U.S. stock exchange outperforms a U.S.-listed Chinese company by 5 ( 6 3 shows, the mean (median) buy-and-hold stock return for CHINESE firms is -12.24%(-19.38%) and the corresponding number for OTHER-ASIAN firms is -7.39% (-8.31%).
In summary, prior to any threat of U.S.-listed Chinese firms being delisted from U.S. stock exchanges, the stock performance of CHINESE companies is between 2 and 5 times the stock performance of OTHER-ASIAN companies.However, for the duration of the HFCAA Legislative Period, the stock performance of OTHER-ASIAN companies is more than 2 times the stock performance of CHINESE companies.The underperformance of CHINESE companies is even greater for the HFCAA Effective Period; the stock performance of OTHER-ASIAN companies is between 5 and 7 times the stock performance of CHINESE companies.This underperformance of CHINESE ends with the PCAOB-China Agreement Period.
Could differences in risk be an explanation for the underperformance of Chinese firms?
Therefore, we analyze four risk variables-BETA, LEVERAGE, BOOK-MARKET, and FFI in Table 4.We find that the mean and median differences in BETA, LEVERAGE and BOOK-MARKET between CHINESE and OTHER-ASIAN groups are statistically significant.Specifically, the BETA is higher for Chinese companies than for other Asian companies, while LEVERAGE and BOOK-MARKET are higher for other Asian companies than for Chinese companies.Thus, while systematic risk is higher for Chinese companies than for other Asian companies, financial risk and default risk are higher for other Asian companies than for Chinese companies.
In Table 5, we examine whether stock underperformance of Chinese companies persists after controlling for the four risk proxies.The coefficient on CHINESE, an indicator variable, captures the incremental difference in stock performance of Chinese companies relative to other Asian companies.For the Pre-HFCAA Period, the coefficient on CHINESE is statistically significant (0.1283, t-stat=2.48).Thus, consistent with the Table 3 results, we find that, controlling for the four risk proxies, U.S.-listed Chinese stocks outperform other U.S.-listed Asian companies for the Pre-HFCAA Period.However, the coefficients on CHINESE are negative and statistically significant for the HFCAA Legislative Period (-0.5214, t-stat=-3.29),and HFCAA Effective Period (-0.3058, t-stat=-3.36).Thus, our results suggest that Chinese firms began underperforming relative to other Asian companies once there was a material likelihood of a firms of U.S.-listed Chinese companies because of the absence of a bilateral agreement between PCOAB and Chinese regulators.One concern was that the lack of PCAOB inspections would erode the financial reporting quality of U.S.-listed Chinese companies, thereby posing serious risk to U.S. investors.In response, U.S. regulators began discussions to delist Chinese companies in the absence of PCAOB inspections.We analyze the economic cost to U.S. investors for the period there was a material likelihood of U.S.-listed Chinese companies being delisted.
We find that just prior to any regulatory initiative to consider delisting, U. Ultimately, the findings emphasize the significance of regulatory compliance, transparency, and the role of regulatory bodies like the PCAOB in maintaining investor confidence and      MARKET is the excess return on the stock market, SMB is the average return on the three small portfolios minus the average return on the three big portfolios, and HML is the average return on the two value portfolios minus the average return on the two growth portfolios.***, **, and * indicate significance at the 1%, 5%, and 10% level, respectively.18.47% This table reports the stock performance of Chinese companies for the combined Pre-HFCAA, HFCAA Legislative, HFCAA Effective and post-HFCAA periods.CHINESE includes companies domiciled in mainland China, and Hong Kong.OTHER-ASIAN countries include India, Japan, South Korea, Malaysia, Taiwan, and Thailand.Panel B reports the mean/median buy-and-hold raw stock returns (CRET).Panel B reports the stock performance (CRET) results after controlling for risk factors for Chinese companies.The risk proxies include BETA (estimated from the market model using daily stock returns from January 1 to December 31, 2018, Pre-HFCAA), LEVERAGE (ratio of total debt to total assets), BOOK-MARKET (ratio of the book value of equity to the market value of equity), and FFI (Fama-French five industry codes).Panel C reports the stock performance results for Chinese companies after controlling for Fama-French risk factors.MARKET is the excess return on the stock market, SMB is the average return on the three small portfolios minus the average return on the three big portfolios, and HML is the average return on the two value portfolios minus the average return on the two growth portfolios.***, **, and * indicate significance at the 1%, 5%, and 10% level, respectively.

Figure 1
Timeline Surrounding the Holding Foreign Companies Accountable Act (HFCAA) December 2, 2020.Finally, the bill was presented to the President of the U.S. and signed by him into a Public Law (No: 116-222) on December 18, 2020. 6HFCAA was effective between December 18, 2020 and August 25, 2022.However, on August 26, 2022, the PCAOB announced that it had signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People's Republic of China to allow PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong without any restrictions.To test compliance with every aspect of the agreement, the PCAOB sent more than 30 PCAOB staff to conduct on-site inspections and investigations in Hong Kong over a nine-week period from September to November 2022.The PCAOB selected two firms for inspection: KPMG Huazhen LLP in mainland China and PricewaterhouseCoopers in Hong Kong.The two inspected firms audited 40 percent of the total market share of U.S.-listed Chinese companies audited by Chinese and Hong Kong accounting firms.PCAOB staff selected these two firms based on the methodology used in all PCAOB inspections, including consideration of risk factors posed by particular firms or issuers, reports, we partition the timeline surrounding the HFCAA into four distinct periods between 2019 and 2022: (1) Pre-HFCAA Period (January 1 to March 27, 2019), (2) HFCAA Legislative Period (March 28, 2019 to December 17, 2020), (3) HFCAA Effective Period (December 18, 2020 to August 25, 2022), and (4) PCAOB-China Agreement Period (August 26 to December 31, 2022).
, 2022, the PCAOB and Chinese financial regulators reached an agreement to allow PCAOB to inspect the audit papers of Chinese audit firms serving as auditors of U.S.listed Chinese firms.The PCAOB-China Agreement Period extends between August 26 and December 31, 2022 in Figure 5.Because the threat of delisting was eliminated, we do not expect CHINESE firms to underperform OTHER-ASIAN companies during this period.Consistent with our expectations, we find that the difference between CHINESE and OTHER-ASIAN companies is statistically insignificant.As Panel D of Table S.-listed Chinese companies outperform other U.S.-listed Asian companies.However, once the U.S. Senate began discussions to introduce legislation that would delist Chinese companies in the absence of PCAOB inspections (March 2019) until the PCAOB and Chinese regulators reached a bilateral agreement to allow PCAOB inspections (August 2022), U.S.-listed Chinese companies underperform other U.S.-listed Asian companies by more than 50%.These results are robust to controlling for conventional risk proxies based on firm characteristics, and Fama-French risk factors.Following the bilateral agreement, the stock performance of Chinese companies is comparable to that of other Asian companies or the Shanghai Index.Therefore, the loss to U.S. investors incurred between March 2019 and August 2022 is not reversed following the inspection period.Furthermore, this research makes a valuable contribution to the existing literature by focusing specifically on Chinese firms among U.S.-listed foreign firms.By examining the unique dynamics and implications of the PCAOB regulations on Chinese firms, this study fills a gap in the auditing and regulation literature, providing insights that are essential for policymakers, regulators, investors, and Chinese firms themselves.
https://stockmarketmba.com/nonuscompaniesonusexchanges.phpfactor model is obtained from Ken French's website. 9Table 1 reports the population of Asian firms listed on U.S. stock exchanges between 2019 and 2022.We partition U.S.-listed Asian firms into two groups.Firms that are based in mainland China and Hong Kong (CHINESE) and other Asian firms (OTHER-ASIAN) that are domiciled in Asia excluding mainland China and Hong Kong.OTHER-ASIAN includes companies from India, Japan, South Korea, Malaysia, Taiwan, and Thailand.Panel A tabulates the number of Asian firms trading in the U.S. between 2019 and 2022.We find that firms headquartered in China are among the most prominent cross-listing examples in the U.S. compared to those from other parts of Asia.For instance, between 2019 and 2022, the number of companies listed on U.S. stock exchanges from China are generally 5 to 6 times the number from other Asian countries.

Table 2 reports
CAR1 and CAR2 for the following five event dates associated with various December 18, 2020 to August 25, 2022), and PCAOB-China Agreement Period because the regulation would force Chinese firms to delist from U.S. stock exchanges in three years if the PCAOB could not inspect the audit papers of their accounting firms during this period consecutively.Consistent with our expectations, we find that CHINESE firms continue to underperform benchmark firms until U.S. and Chinese regulators finally reached an agreement to allow PCAOB inspections of Chinese audit firms on August 26, 2022 (see Figure Surprisingly, CAR1 and CAR2 are both positive (2.12% and 3.85%) and statistically significant around December 18, 2020 (the day HFCAA became a Law).Finally, as expected, CAR1 and CAR2 are both positive (2.98% and 2.20%) and statistically significant around August 26, 2022 (PCAOB-China Agreement date), which suggests that investors respond positively to the news about the lower likelihood of the delisting of U.S.-listed Chinese companies because the agreement allows PCAOB inspections of Chinese audit firms.
This table reports the sample size for Chinese companies and other Asian companies.CHINESE includes companies domiciled in mainland China, and Hong Kong.OTHER ASIAN countries include India, Japan, South Korea, Malaysia, Taiwan, and Thailand.Panel A reports the total number of firms traded in the US that are domiciled in Asian Countries.Panel B reports the number of firms included in CRSP in each of the four periods (Pre-HFCAA, HFCAA Legislative Period, HFCAA Effective Period, PCAOB-China Agreement Period).

TABLE 2
Stock Market Reaction around the Various Stages of the HFCAA Legislative ProcessThis table reports the mean CARs for U.S.-listed Chinese firms around the following event dates (measured over five days around each event window): (1) the introduction of HFCAA at the Senate (March 28, 2019), (2) passing of the HFCAA at the Senate (May 20, 2020), (3) passing of the HFCAA by the House of Representatives (December 2, 2020), (4) HFCAA becomes the law the day it is signed by the President (December 18, 2020), and (5) China and PCAOB reach an agreement to allow inspections(August 26, 2022).CAR1 is the difference between buy-and-hold stock returns of CHINESE firms for five days around an event window and the buy-and-hold CRSP equally weighted returns for the corresponding period.CAR2 is the difference between buy-and-hold stock returns of CHINESE firms for five days around an event window and the buy-and-hold stock returns of OTHER-ASIAN firms for the corresponding period.CHINESE includes companies domiciled in mainland China, and Hong Kong.OTHER-ASIAN countries include India, Japan, South Korea, Malaysia, Taiwan, and Thailand.***, and ** indicate significance at the 1% and 5%, respectively.

TABLE 3
Stock Performance of U.S.-listed Chinese Versus Other U.S.-listed Asian CompaniesThis table reports the mean and median stock performance results for Chinese companies and other Asian companies.Stock performance is measured using buy-and-hold stock returns (CRET) for four holding period (Pre-HFCAA, HFCAA Legislative Period, HFCAA Effective Period, PCAOB-China Agreement Period).CHINESE includes companies domiciled in mainland China, and Hong Kong.OTHER-ASIAN countries include India, Japan, South Korea, Malaysia, Taiwan, and Thailand.We also report the difference in the mean (median) numbers between the two groups and the associated t(z)-statistic.N is the number of firms.

TABLE 4
Risk Differences for the Pre-HFCAA Period(January 1, 2019)This table reports the mean and median values of four firm-specific risk proxies for Chinese companies and other Asian companies.The risk proxies include BETA (estimated from the market model using daily stock returns from January 1 to December 31, 2018, Pre-HFCAA), LEVERAGE (ratio of total debt to total assets), BOOK-MARKET (ratio of the book value of equity to the market value of equity), and FFI (Fama-French five industry codes).We winsorize LEVERAG to make it less than 1.00, and winsorize BOOK-MARKET to make it less than 4.00.CHINESE includes companies domiciled in mainland China, and Hong Kong.OTHER-ASIAN countries include India, Japan, South Korea, Malaysia, Taiwan, and Thailand.We also report the difference in the mean (median) numbers between the two groups and the associated t(z)-statistic.N is the number of firms in the sample.***, **, and * indicate significance at the 1%, 5%, and 10% level, respectively.

TABLE 5
Stock Performance of U.S.-listed Companies After Controlling for RiskThis table reports the estimated coefficients (and the associated t-statistics in parentheses) from OLS regressions for each of the three periods: Pre-HFCAA, HFCAA Legislative, and HFCAA Effective.CHINESE is dummy variable, equals to 1 when it is a CHINESE firm, equals to zero when it is an OTHER-ASIAN firm.BETA is estimated from the market model using daily stock returns from January 1 to December 31, 2018 (Pre-HFCAA).LEVERAGE is the ratio of total debt to total assets, BOOK-MARKET is the ratio of the book value of equity to the market value of equity.FFI is Fama-French five industry codes, equals to 1 to 5. We winsorize LEVERAG to make it less than 1.00, and winsorize BOOK-MARKET to make it less than 4.00.

TABLE 6
Stock Performance of U.S.-listed Companies After Controlling for theFama-French Risk FactorsThis table reports the estimated coefficients (and the associated t-statistics in parentheses) from the Fama-French Three Factor model using the CHINESE sample.CHINESE includes companies domiciled in mainland China, and Hong Kong.We estimate this model for three periods: Pre-HFCAA (January 1 to March 27, 2019), HFCAA Legislative Period (March 28, 2019 to December 17, 2020), HFCAA Effective Period (December 18, 2020 to August 25, 2022).

TABLE 7
Stock Performance for the Combined period(March 28, 2019 to December 31, 2022)