In this paper, we examine why Chinese reverse merger (RM) firms have lower financial reporting quality than U.S. IPO firms. We find that the financial reporting quality of U.S. RM firms is similar to that of matched U.S. IPO firms, but Chinese RM firms exhibit lower financial reporting quality than Chinese ADR firms. We also find that Chinese RM firms exhibit lower financial reporting quality than U.S. RM firms. These results indicate that the use of the RM process is associated with poor financial reporting quality only in firms from China, where legal enforcement and investor protection are weak. In addition, we find that compared with Chinese ADR firms, Chinese RM firms have weaker bonding incentives (as measured by CEO turnover-performance sensitivity) and poorer corporate governance. These factors, in turn, contribute to the lower financial reporting quality of Chinese RM firms. Overall, our results suggest that the less scrutinized RM process allows the Chinese firms with weak bonding incentives and poor governance to gain access to U.S. capital markets, resulting in poor financial reporting quality. JEL Classifications: G15; G24; G34; G38.

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This paper examines the quality of financial reporting of Chinese firms cross-listed in the United States, Hong Kong and noncross-listed Chinese firms. We examine quality of financial reporting based on measures of earnings management, timely loss recognition and price-earnings association. We find that both cross-listings and noncross-listings show significant earnings smoothing and use accruals to manage earnings, and are not timely in loss recognition. We surmise that cross-listing in the United States or Hong Kong has not changed the accounting choices of Chinese cross-listing firms. However, our findings show that the market considers earnings and book value data of cross-listing firms to be more informative than those of noncross-listing firms in the event of good news. Our contribution is to show that in contrast to previous literature, firms from China do not have better reporting quality when they cross-list in the United States. There are still significant accounting deficiencies in many Chinese firms cross-listed in the United States (Financial Times, 2011).

The introduction of new products has always been an important source of economic development and improvement in consumer welfare. With retail coffee data spanning 5 years after the single-cup brew coffee pods were introduced to grocery chains, this paper empirically studies the market effects of new product introduction in the brew-at-home coffee market. We use a structural model of demand and supply to capture the changes in consumers' preference for this new product over time. The demand estimates suggest that consumers' relative preference and willingness-to-pay for the new product grew substantially over the sample periods. The analysis reveals the extent to which the introduction and growing presence of the new product simultaneously expanded the relevant market and cannibalized the sales of preexisting substitute products (traditional auto-drip brew coffee products). Furthermore, we quantify the annually expanding welfare gains of the average consumer attributable to the new product.

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The significant worldwide decline in crude oil price beginning in mid-2014 through to 2015, which resulted in substantial fuel expense reductions for airlines, but no apparent commensurate reductions in industry average airfares has caused much public debate. This paper examines the market mechanisms through which crude oil price may influence airfare, which facilitates identifying the possible market and airline-specific characteristics that influence the extent to which crude oil price changes affect airfare. Interestingly, and new, our analysis reveals that the crude oil-airfare pass-through relationship can be either positive or negative, depending on various market and airline-specific characteristics. We find evidence that airline-specific jet fuel hedging strategy and market origin-destination distance contribute significantly to pass-through rates being negative. Specifically, the value of pass-through rate decreases with airline fuel hedging ratios and with market origin-destination distance, but increases with competition in origin-destination markets. Even when the pass-through relationship is positive, suggesting that a portion of airlines' fuel cost savings is passed on to consumers via lower airfares, this research reveals the market and airline-specific factors that limit the size of these savings passed on to consumers via lower airfares.

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