Discussion of "The effect on financial reporting quality of an exemption from the SEC reporting requirements for foreign private issuers"

We test for differences in financial reporting quality between companies that are required to file periodically with the SEC and those that are exempted from filing reports with the SEC under Rule 12g3-2(b). We examine three earnings quality measures: conservatism, abnormal accruals, and the predictability of earnings. Our results, for all three measures, show improved financial reporting quality for companies that file with the SEC than for those that are exempt from filing requirements; this difference in financial reporting quality can lead investors to question why the SEC allows the exemption (and is currently discussing expanding the exemption) when one of the primary goals of the SEC is the protection of US investors.