ADRs and Audit Pricing: Influence of disclosure and legal environment regime

Cross-listed firms natively operate in countries where regulations are less enforced, disclosure requirements and the legal environment are laxer than in the US. Thus, cross-listed firms typically pay lower audit fees than US peer groups. Based on reported audit data of the cross-listed firms in the US, this study explores how their home country's regulatory environment affects audit fees when they cross-list on US stock exchanges. The empirical results indicate that the cross-listed firms pay lower audit fees than their US counterparts. However, other regulatory environments in the home country, like disclosure requirements or anti-director dictatorship, may require more audit efforts. Further, the cross-listed firms that prepare reconciliation to US GAAP pay lower audit fees than other ADR firms that are using IFRS or US GAAP. However, still most of ADR firms pay lower audit fees than US counterpart firms.