Compliance and determinants of US-listed foreign firms’ 20-F filings under the new Securities and Exchange Commission accelerated deadline

Author:Kam C. Chan, Samir El-Gazzar, Rudolph A. Jacob, Picheng Lee
Position:Lubin School of Business, Pace University, Pleasantville, New York, USA; Lubin School of Business, Pace University, Pleasantville, New York, USA; Lubin School of Business, Pace University, Pleasantville, New York, USA; Lubin School of Business, Pace University, Pleasantville, New York, USA
Pages:161-178
SUMMARY

Purpose - The purpose of this paper is to investigate the impact of the US Securities and Exchange Commission (SEC) accelerated deadline on foreign firms, and the 20-F filing practices and factors relating to the filing lags. Design/methodology/approach - The authors identified 338 firms that file 20-F reports with the SEC during the period of 2010 and 2011. The authors then... (see full summary)

 
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Compliance and determinants of
US-listed foreign rms’ 20-F
lings under the new Securities
and Exchange Commission
accelerated deadline
Kam C. Chan, Samir El-Gazzar, Rudolph A. Jacob and
Picheng Lee
Lubin School of Business, Pace University, Pleasantville, New York, USA
Abstract
Purpose – The purpose of this paper is to investigate the impact of the US Securities and Exchange
Commission (SEC) accelerated deadline on foreign rms, and the 20-F ling practices and factors
relating to the ling lags.
Design/methodology/approach – The authors identied 338 rms that le 20-F reports with the
SEC during the period of 2010 and 2011. The authors then used multivariate regressions to examine the
effects of the shortened deadline on foreign rms’ ling practices and the factors associated with
these practices. In the regression models, the authors also control for other rm characteristics that have
shown to affect the ling lags of US rms such as rm performance, size, mergers and restructures,
audit rm, compliance with internal control requirements under Sarbanes Oxley Act, internal control
weaknesses, going concern audit opinion and operating complexity.
Findings – Based on a sample of 338 US-listed foreign rms, the results indicate that there is a
signicant reduction in the ling lags and a change in their distribution for scal year 2011, as
compared to the preceding year, and as intended by the SEC. The authors also nd that 20-F ling lags
are negatively related to the use of International Financial Reporting Standards (IFRS) or US-GAAP in
20-F reports and use of the English language in foreign rms’ home countries.
Practical implications – The ndings of this paper are of interest to accounting regulatory bodies
including the SEC, US Financial Accounting Standards Board and the International Accounting
Standards Board by showing that registrants respond positively to regulations intending to promote
timeliness of accounting disclosures and reporting, although many rms may oppose them in the due
process stage.
Originality/value – The authors contribute to the extant literature by providing new evidence that
20-F ling lags are negatively related to the use of IFRS or US-GAAP in 20-F reports, and the use of
English language in foreign rms’ home countries.
Keywords 20-F, Filing lags, Legal bonding
Paper type Research paper
1. Introduction
American depositary receipt (ADR) is an effective way for foreign rms to list their
shares on US stock exchanges. In the past, foreign rms with ADR listings on major US
stock exchanges have to le their annual Form 20-F reports with the Securities and
Exchange Commission (SEC) within six months after their scal year end. Frost and
The current issue and full text archive of this journal is available on Emerald Insight at:
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Securities and
Exchange
Commission
161
Journalof Financial Regulation
andCompliance
Vol.23 No. 2, 2015
pp.161-178
©Emerald Group Publishing Limited
1358-1988
DOI 10.1108/JFRC-02-2014-0008
Kinney (1996) examine the disclosure practices of US-listed foreign rms in the USA and
nd that about half of their sample rms led their 20-F reports within days of the
six-month deadline. In 2008, the SEC, to encourage foreign rms to provide timelier and,
thus, more useful information to USA investors, shortened the ling deadline to four
months after the rm’s scal year end (SEC, 2008b). This study examines the impact of
the accelerated deadline on rms’ 20-F ling practices and their determinants.
Initially, the SEC had proposed in 2008 a more stringent ling deadline of three
months after the scal year-end for large accelerated and accelerated foreign rms (SEC,
2008a)[1]. All other foreign rms would have had four months to le their 20-F reports.
The SEC (2008a) believes that changes in the global market place and advances in
information technology have made it easier to gather, process and disseminate
information more expeditiously. In addition, the elimination of US-GAAP reconciliation
for rms using International Financial Reporting Standards (IFRS) in their 20-F reports
should allow foreign rms to le their 20-F reports earlier.
As foreign rms had previously led their 20-F reports very close to the six-month
ling deadline, it is expected that the SEC’s new regulation will have a signicant
impact on foreign rms’ ling practices. Not surprisingly, many foreign rms, law rms
and public accounting rms were opposed to the SEC proposal. The cardinal complaint
was that the SEC proposal would create many challenges for foreign rms, given their
local reporting customs. As a result, large accelerated and accelerated foreign lers may
have to le their 20-F reports in the USA before their annual reports are being led in
their home countries. Below is an excerpt from the comment letter of KPMG to the
SEC[2]:
We note that the statutory ling deadlines in many home jurisdictions, such as in the European
Union, fall within 120 days from the issuer’s scal year end. However, we recognize that
certain jurisdictions may have statutory deadlines that either fall beyond 120 days or require
additional actions such as shareholder approval prior to the statutory ling with a minimum
shareholder notice period (e.g. 30 days), such as in Brazil. The proposal to accelerate ling
deadlines from six months to 90 or 120 days may result in SEC ling dates overriding local
ling deadline so that an entity’s reporting timeline is driven by USA rather than local ling
and audit requirements.
Translation of the nancial reports from foreign languages to English is cited as an
additional impediment associated with the accelerated 20-F ling deadline (SEC, 2008b).
Also, foreign rms not using US-GAAP or IFRS still would have to provide US-GAAP
reconciliations.
Weighing carefully all of the above arguments, the SEC nally reached a compromise
requiring all 20-F reports to be led within four months after the scal year-end
regardless of rm size (SEC, 2008b). The accelerated ling deadline is effective for scal
years ending on or after December 15, 2011. Thus, foreign rms with a December 31,
2011 scal year-end had to le their Form 20-F by April 30, 2012. If a rm fails to le the
Form 20-F on time, it can le NT 20-F for a 15-day extension. Meanwhile, the SEC asserts
that it “will continue to monitor market developments to consider whether it would be
appropriate to accelerate further the due date for Form 20-F annual reports” (SEC, 2008b,
p. 31).
The objectives of this study are threefold. First, we examine the impact of the SEC’s
decision to accelerate the Form 20-F ling deadline on foreign rms’ ling practices. The
new accelerated deadline effectively changes the maximum ling lag from about 180
JFRC
23,2
162

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