Mandatory restatement, family dominance and management turnover: the evidence from an emerging economy
-
DOIhttp://dx.doi.org/10.21511/imfi.14(2-1).2017.01
-
Article InfoVolume 14 2017, Issue #2 (cont. 1), pp. 144-155
- 1147 Views
-
527 Downloads
This work is licensed under a
Creative Commons Attribution-NonCommercial 4.0 International License
Due to the uniqueness of mandatory restatements, this paper examines whether family dominance affects the relationship between mandatory restatements and management turnover in an emerging economy – Taiwan. This paper adopts logistic regression models along with reporting the marginal effect of all explanatory variables to examine management turnover in different years around the year of mandatory restatement announcement. The findings show that family directorship weakens the positive relationship between mandatory restatements and management turnover in one year after the year of mandatory restatement announcement whereas do not show that family shareholding can affect the above relationship in any observed years. The findings have essential policy implications for security regulators and firms to strengthen family governance practices and financial reporting quality.
- Keywords
-
JEL Classification (Paper profile tab)G30, M41, J12
-
References49
-
Tables4
-
Figures0
-
- Table 1. Management turnover in mandatory restatement firms versus control firms
- Table 2. Management turnover in a given year – logistic regression
- Table 3. Management turnover in a given year – independent variables with marginal effect
- Table 4. Turnover before, in and after the year of mandatory restatement announcement
-
- Abbott, L. J., Parker, S., and Presley, T. J. (2012). Female board presence and the likelihood of financial restatement. Accounting Horizons, 26(4), 607-629.
- Agrawal, A., and Chadha, S. (2005). Corporate governance and accounting scandals. Journal of Law and Economics, 48(2), 371-406.
- Arthaud-Day, M. L., Certo, S. T., Dalton, C. M., and Dalton, D. R. (2006). A changing of the guard:Executive and director turnover following corporate financial restatements. The Academy of Management Journal, 49(6), 1119-1136.
- Abdullah, S. N., Yusof, N. Z. M., and Nor, N. M. (2010). Financial restatements and corporate governance among Malaysian listed companies. Managerial Auditing Journal, 25(6), 526-552.
- Baber, W. R., Liang, L., and Zhu, Z. (2012). Associations between internal and external corporate governance characteristics: Implications for investigating financial accounting restatements. Accounting Horizons, 26(2), 219-223.
- Badertscher, B. A., and Burks, J. J. (2011). Accounting restatements and the timeliness of disclosures. Accounting Horizons, 25(4), 609-629.
- Badertscher, B. A., Hribar, S. P., and Jenkins, N. T. (2011). Informed trading and the market reaction to accounting restatements. The Accounting Review, 86(5), 1519-1547.
- Blankley, A. I., Hurtt, D. N., and MacGregor, J. E. (2012). Abnormal audit fees and restatements. AUDITING: A Journal of Practice & Theory, 31(1), 79-96.
- BenYoussef, N., and Khan, S. (2016). Timing of earnings restatements: CEO equity compensation and market reaction. Accounting & Finance, 1-25.
- Burks, J. J. (2011). Are investors confused by restatements after Sarbanes-Oxley? The Accounting Review, 86(2), 507-539.
- Chakravarthy, J., deHaan, E., and Rajgopal, S. (2014). Reputation repair after a serious restatement. The Accounting Review, 89(4), 1329-1363.
- Chen, K. Y., Elder, R., and Hsieh, Y. M. (2011). Corporate governance, growth opportunities, and earnings restatements: Effect of a corporate governance code. Asia Pacific Journal of Accounting and Economics, 18(2), 169-200.
- Chen, X., Cheng, Q., and Lo, A. K. (2014). Is the decline in the information content of earnings following restatements short-lived? The Accounting Review, 89(1), 177-207.
- Cheng, Q., and Farber, D. B. (2008). Earnings restatements, changes in CEO compensation, and firm performance. The Accounting Review, 83(5), 1217-1250.
- Classens, S., Djankov, S., and Lang, L. (2000). The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 58, 81-112.
- Collins, D., Reitenga, A. L., and Sanchez, J. M. (2008). The impact of accounting restatements on CFO turnover and bonus compensation: Does securities litigation matter? Advances in Accounting, incorporating Advances in International Accounting, 24, 162-171.
- Daily, C. M., and Dalton, D. R. (1995). CEO and director turnover in failing firms: An illusion of change? Strategic Management Journal, 16, 393-400.
- Demirkan, S., and Fuerman, R. D. (2014). Auditor litigation: Evidence that revenue restatements are determinative. Research in Accounting Regulation, 26(2), 164-174.
- Desai, H., Hogan, C. E., and Wilkins, M. S. (2006). The reputational penalty for aggressive accounting: Earnings restatements and management turnover. The Accounting Review, 81(1), 83-112.
- Ettredge, M., Huang, Y., and Zhang, W. (2013). Restatement disclosures and management earnings forecasts. Accounting Horizons, 27(2), 347-369.
- Fan, J. P. H., and Wong, T. J. (2002). Corporate ownership structure and the informativeness of accounting earnings in East Asia. Journal of Accounting and Economics, 33, 401-425.
- Greene, W. (1999). Marginal effects in censored regression mode. Economics Letters, 64, 43-49.
- Hennes, K. M., Leone, A. J., and Miller, B. P. (2008). The importance of distinguishing errors from irregularities in restatement research: The case of restatements and CEO/CFO turnover. The Accounting Review, 83(6), 1487-1519.
- Hennes, K. M., Leone, A. J., and Miller, B. P. (2014). Determinants and market consequences of auditor dismissals after accounting restatements. The Accounting Review, 89(3), 1051-1082.
- Her, Y. W., Lim, J., and Son, M. (2010). The impact of financial restatements on audit fees: Consideration of restatement severity. International Review of Accounting, Banking and Finance, 1-22.
- Hogan, B., and Jonas, G. A. (2016). The association between executive pay structure and the transparency of restatement disclosures. Accounting Horizons, 30(3), 307-323.
- Hirschey, M., Smith, K. R., and Wilson, W. M. (2015). The timeliness of restatement disclosures and financial reporting credibility. Journal of Business Finance & Accounting, 42(7-8), 826-859.
- Hribar, P., and Jenkins, N. T. (2004). The effect of accounting restatements on earnings revisions and the estimated cost of capital. Review of Accounting Studies, 9(2), 337-356.
- Huang, Y., and Scholz, S. (2012). Evidence on the association between financial restatements and auditor resignations. Accounting Horizons, 26(3), 439-464.
- Jiang, H., Habib, A., and Zhou, D. (2015). Accounting restatements and audit quality in China. Advances in Accounting,31(1), 125-135.
- Kryzanowski, L., and Zhang, Y. (2013). Financial restatements and Sarbanes-Oxley: Impact on Canadian firm governance and management turnover. Journal of Corporate Finance, 21, 87-105.
- Irani, A. J., Tate, S. L., and Xu, L. E. (2015). Restatements: Do they affect auditor reputation for quality? Accounting Horizons, 29(4), 829-851.
- Land, J. K. (2010). CEO turnover around earnings restatements and fraud. Pacific Accounting Review, 22(3), 180-198.
- Ma, C., Zhang, J., and Yang, B. (2015). Financial restatement and auditor dismissal, China Journal of Accounting Studies, 3(3), 209-229.
- Mande, V., and Son, M. (2013). Do financial restatements lead to auditor changes? Auditing: A Journal of Practice & Theory, 32(2), 119-145.
- Palmrose, Z. V., Richardson, V. J., and Scholz, S. (2004). Determinants of market reactions to restatement Announcements. Journal of Accounting and Economics, 37, 59-89.
- Raghunandan, K., Read, W. J., and Whisenant, J. S. (2013). Initial evidence on the association between nonaudit fees and restated financial statements. Accounting Horizons, 17(3), 223-234.
- Rich, K. T., and J. X. Zhang. (2016). Municipal accounting restatements and top financial manager turnover. Journal of Public Budgeting, Accounting & Financial Management, 28(2), 222-249.
- Schmidt, J. J. (2012). Perceived auditor independence and audit litigation: The role of nonaudit services fees. The Accounting Review, 87(3), 1033-1065.
- Schmidt, J., and Wilkins, M. S. (2013). Bringing darkness to light: The influence of auditor quality and audit committee expertise on the timeliness of financial statement restatement disclosures. Auditing: A Journal of Practice &Theory, 32(1), 221-244.
- Stanley, J. D., and DeZoort, F. T. (2007). Audit firm tenure and financial restatements: An analysis of industry specialization and fee effects. Journal of Accounting and Public Policy, 26(2), 131-159.
- Srinivasan, S. (2005). Consequences of financial reporting failure for outside directors: Evidence from accounting restatements and audit committee members. Journal of Accounting Research, 43(2), 291-334.
- Sue, S. H., Chin, C. L., and Chan, A. L. C. (2013). Exploring the causes of accounting restatements by family firms. Journal of Business Finance & Accounting, 40(9-10), 1068-1094.
- Peng, M. W., and Jiang, Y. (2010). Institutions behind family ownership and control in large firms. Journal of Management Studies, 47, 253-273.
- Venkatraman, N., and Ramanujam, V. (1986). Measurement of business performance in strategy research: A comparison of approaches. The Academy of Management Review, 801-815.
- Wang, T. S., Lin, Y. M., and Chao, C. F. (2013). Board independence, executive compensation and restatement. Applied Financial Economics, 23(11).
- Wilson, W. M. (2008). An empirical analysis of the decline in the information content of earnings following restatements. The Accounting Review, 83(2), 519-548.
- Xiaoxiang, Z., Wei, J. T., and Wu, H. H. (2013). Forced financial information restatements and management turnover: Market discipline and large family shareholders’ intervention in an emerging economy. Asia Pacific Journal of Management, 30(4),1005-1029.
- Yeh, Y. H., and Woidtke, T. (2005). Commitment or entrenchment?Controlling shareholders and board composition. Journal of Banking & Finance, 29, 1857-1885.