Do post-restatement firms care about financial credibility? Evidence from the pre- and post-SOX eras

Ken Y. Chen, Randal J. Elder, Shengmin Hung

Research output: Contribution to journalArticle

11 Scopus citations

Abstract

This study examines whether negative-market-reaction firms in the year following restatement announcements adopt more conservative financial reporting to respond to their financial reporting credibility crisis, especially in the post-SOX era. Using Basu's (1997) measure of conservatism, we find that negative-market-reaction firms in the year following restatement announcements report their financial statements more conservatively in the post-SOX era, as the market reaction following restatement announcements becomes more severe. We also find that as the negative market restatement reaction becomes more severe, negative-market-reaction firms using a Big N auditor in the year following financial restatements report their financial statements more conservatively in the post-SOX era.

Original languageEnglish (US)
Pages (from-to)107-126
Number of pages20
JournalJournal of Accounting and Public Policy
Volume33
Issue number2
DOIs
StatePublished - Mar 2014

ASJC Scopus subject areas

  • Accounting
  • Sociology and Political Science

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