Corporate Governance Determinants of Financial Restatements: A Meta-Analysis

This paper conducts a meta-analysis of 182 published archival accounting and auditing studies on the corporate governance determinants of financial restatements. We aim to provide a focused and systematic examination on various internal and external corporate governance factors that may predict financial restatements. We do so by aggregating results statistically across individual studies and correcting for statistical artefacts. Thereby, we provide findings that are much more precise than those of narrative reviews. We categorize the chosen governance variables into:

(1) audit firm and audit engagement characteristics;

(2) gender, board attributes, and audit committee attributes;

(3) CEO related attributes;

(4) ownership structure variables, and

(5) external corporate governance variables and, thus, we generate a total of 37 separate corporate governance variables.

Our results reveal that the governance mechanisms of Big N auditor choice, types and timeliness of audit opinions, and board independence are significantly and negatively associated with the occurrence of financial restatements. However, economic bonding between auditors and their clients, insider ownership, and firm complexity all increase the likelihood of restatements significantly. We hope that our findings will make a meaningful contribution to the literature on financial restatements and corporate governance by providing insights for regulators on the governance mechanisms that may require further scrutiny in combating the occurrence of financial restatements.

Keywords: Financial Restatements; Corporate Governance; External Auditing; Meta-Analysis

Suggested Citation: Suggested Citation

Habib, Ahsan and Bhuiyan, Md. Borhan Uddin and Wu, Julia, Corporate Governance Determinants of Financial Restatements: A Meta-Analysis (July 13, 2020). The International Journal of Accounting, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3591034