This paper examines conditional accounting conservatism (Basu, 1997) of Chinese companies that are overseas listed in Hong Kong as H-shares. Due to cultural, historical and political factors, H-share companies are expected to report no more conservatively than their Chinese counterparts that are not overseas listed. The institutional setting of H-share companies, with concentrated state ownership structures, bureaucratic management incentives and political interference, are expected to impede the supply of conservative reporting. Hong Kong listed H-share companies are exposed to the threat of litigation, competitive market forces and a strict regulatory regime in Hong Kong. However, despite these factors, we expect them to report less conservatively than native Hong Kong companies. This is because of the dominance of local institutional incentives that are culturally based. Consistent with our predictions, we find that H-share companies report aggressively whereas matched Chinese companies that are not overseas listed report neutrally. In addition, H-share companies are less conservative than native Hong Kong companies. Our evidence suggests that the location of listing has little effect on conditional conservatism because overseas listed Chinese companies retain a significant exposure to their domestic environment.
