Are Financially Constrained Firms More Prone to Financial Restatements? PDF Download
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Author: Robert M. Bowen
Publisher:
ISBN:
Category :
Languages : en
Pages : 60
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Book Description
We examine the association between firms' financial constraints and potentially value- destroying financial restatements. How financial constraints affect managerial behavior has been labeled as a core issue in accounting and finance. Ex-ante, the nature of the relation between financial constraints and financial restatements is unclear and remains unexplored in the literature.We find that financially constrained firms are more prone to restate their financial statements. We examine two explanations for this relation. First, consistent with managerial opportunism, we find that among financially constrained firms, weaker firm performance, greater financial leverage, and greater informational complexity are associated with higher discretionary accruals and more restatements. Second, consistent with managerial signalling, we find that although firms with greater investment opportunities and financing needs have higher discretionary accruals, they are not associated with more restatements. These firms signal positive prospects through earnings management while avoiding GAAP violations that could trigger restatements. Finally, we find that a financial constraint measure based on textual analysis outperforms traditional metrics used in most prior research.
Author: Robert M. Bowen
Publisher:
ISBN:
Category :
Languages : en
Pages : 60
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Book Description
We examine the association between firms' financial constraints and potentially value- destroying financial restatements. How financial constraints affect managerial behavior has been labeled as a core issue in accounting and finance. Ex-ante, the nature of the relation between financial constraints and financial restatements is unclear and remains unexplored in the literature.We find that financially constrained firms are more prone to restate their financial statements. We examine two explanations for this relation. First, consistent with managerial opportunism, we find that among financially constrained firms, weaker firm performance, greater financial leverage, and greater informational complexity are associated with higher discretionary accruals and more restatements. Second, consistent with managerial signalling, we find that although firms with greater investment opportunities and financing needs have higher discretionary accruals, they are not associated with more restatements. These firms signal positive prospects through earnings management while avoiding GAAP violations that could trigger restatements. Finally, we find that a financial constraint measure based on textual analysis outperforms traditional metrics used in most prior research.
Author: Orice Williams
Publisher: DIANE Publishing
ISBN: 1422309177
Category :
Languages : en
Pages : 211
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Book Description
In 2002, it was reported that the number of restatement announcements due to financial reporting fraud &/or accounting errors grew significantly between Jan. 1997 & June 2002, negatively impacting the restating companies¿ market capitalization by billions of dollars. The author was asked to update key aspects of the 2002 report. This report discusses: (1) the number of, reasons for, & other trends in restatements; (2) the impact of restatement announcements on the restating companies¿ stock costs & what is known about investors¿ confidence in U.S. capital markets; & (3) regulatory enforcement actions involving accounting- & audit-related issues. Includes recommendations. Charts & tables.
Author: Murillo Campello
Publisher:
ISBN:
Category :
Languages : en
Pages : 22
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Book Description
Using comprehensive firm- and aggregate-level data, this paper studies the real and financial implications of capital market imperfections. We first examine whether financially constrained firms' business fundamentals (capital spending and operating earnings) are more sensitive to macroeconomic movements than unconstrained firms' fundamentals. We then examine whether financial constraint quot;return factorsquot; respond to macroeconomic shocks in tandem with the responses from business fundamentals. The evidence in this paper points to financial constraints affecting both fundamental quantities and asset returns.
Author: Xiang Xiao
Publisher:
ISBN:
Category :
Languages : en
Pages : 11
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Book Description
Based on agency theory and signaling theory, we take a sample of Shanghai A-share listed companies during the period 2011-2015 and use a path analysis to construct our research models. This paper first studies the influence of financial restatement on inefficient investment, and then investigates a latent variable, financing constraints, and studies the mediating effect of financing constraints in the relationship. The results show that for the over-invested companies, the degree of over-investment will be reduced after financial restatement, with financing constraints playing a partial mediating role. For the under-invested companies, the degree of under-investment will be more serious after the financial restatements, with financing constraints also playing a partial mediating role. This paper enriches the application of a mathematical method, path analysis, in social science, and reveals the mediating effects of financing constraints. This paper is meant to guide listed companies in strengthening their corporate governance, and improving their information disclosure quality.
Author: Gladyson Demonier
Publisher:
ISBN:
Category :
Languages : en
Pages : 15
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Book Description
Objective - This study investigates the effects of financial constraints on the conservatism practices of Brazilian firms.Design/methodology/approach - A sample totaling 1,086 observations of Brazilian publicly traded companies listed on BM&FBovespa was developed from 2000 to 2012. In the sample 106 observations were classified in condition of financially constrained according to the criteria related to lower dividends payout, large amount of cash and equivalents available and investment or capital expenditures (property, plant and equipment). We use Basu (1997) and Ball and Shivakumar (2005) models to investigate the relationship between financial constraints and accounting conservatism.Findings - The results show financially constrained firms adopt less conditional conservatism practices on their accounting figures. In other words, those firms avoid to disclose losses trying to access more external funds, however, increasing information asymmetry.Practical implications - The evidence of this study could be used by creditors and regulators to support new financing policies and risk monitoring through firms' financial statements.Originality/value - We empirically show that conditional conservatism practices are affected by financial constraints. Also, we develop an alternative way to classify companies in terms of financial constraints from a combination of three proxies traditionally applied in the literature such as cash and cash-equivalent, capital expenditure (property, plant and equipment) and dividends payout.
Author: Shu-Hui Sue
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Prior research shows that family firms have better earnings quality than non-family firms in common-law countries and highly developed markets. In contrast, we do not find a significant difference in the financial reporting quality between family and non-family firms in the context of a civil-law system and less developed market. We show that the financial reporting quality of family firms is conditioned on (1) the divergence between the controlling shareholders' voting rights and their cash flow rights, and (2) the firm's reputation for integrity, while these two conditions do not explain the restatement likelihood for non-family firms. Moreover, when accounting irregularities are detected in the case of family firms, they are associated with more serious accounting restatements. Together, these results imply that the severity of the conflict between ultimate and minority shareholders, and a lack of integrity, explain the propensity for making financial restatements among family firms in a regime characterized as having weak investor protection and concentrated ownership structures.
Author:
Publisher: DIANE Publishing
ISBN: 1428944737
Category :
Languages : en
Pages : 272
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Book Description
Author: Kose John
Publisher: Emerald Group Publishing
ISBN: 1780527888
Category : Business & Economics
Languages : en
Pages : 247
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Book Description
This volume contains eight empirical papers that examine corporate governance from a number of different perspectives.
Author: Yasuyuki Fuchita
Publisher: Brookings Institution Press
ISBN: 0815729820
Category : Business & Economics
Languages : en
Pages : 216
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Book Description
A Brookings Institution Press and Nomura Institute of Capital Markets Research publication Developed country capital markets have devised a set of institutions and actors to help provide investors with timely and accurate information they need to make informed investment decisions. These actors have become known as "financial gatekeepers" and include auditors, financial analysts, and credit rating agencies. Corporate financial reporting scandals in the United States and elsewhere in recent years, however, have called into question the sufficiency of the legal framework governing these gatekeepers. Policymakers have since responded by imposing a series of new obligations, restrictions, and punishments—all with the purpose of strengthening investor confidence in these important actors. Financial Gatekeepers provides an in-depth look at these new frameworks, especially in the United States and Japan. How have they worked? Are further refinements appropriate? These are among the questions addressed in this timely and important volume. Contributors include Leslie Boni (University of New Mexico), Barry Bosworth (Brookings Institution), Tomoo Inoue (Seikei University), Zoe-Vonna Palmrose (University of Southern California), Frank Partnoy (University of San Diego School of Law), George Perry (Brookings Institution), Justin Pettit (UBS), Paul Stevens (Investment Company Institute), Peter Wallison (American Enterprise Institute).
Author: United States. Congress. Senate. Committee on Governmental Affairs
Publisher:
ISBN:
Category : Credit ratings
Languages : en
Pages : 108
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Book Description
