Does the U.S. Market Reward Foreign Firms and Domestic Firms Differently? Evidence from Meeting-or-Beating Earnings Expectations

This paper investigates whether the U.S. market rewards cross-listed foreign firms and domestic firms differently when they meet or beat earnings expectations (MBE). Using 1,800 matched pairs of foreign firms and domestic firms from year 2005 to 2014, we find that (1) the MBE premium is discounted for foreign firms compared to U.S. domestic firms, (2) although the reward for MBE is discounted for foreign firms, they suffer a similar penalty as domestic firms when they miss expectations, (3) foreign firms from countries with strong legal enforcement and full or substantial IFRS adoption enjoy an MBE premium similar to that of domestic firms, while foreign firms from countries with weak legal enforcement and without full or substantial IFRS adoption experience a discounted MBE premium, and (4) both language difference and culture distance appear to account for the differential MBE premium between foreign firms and domestic firms as well.