Accounting Restatements and External Financing Choices

45 Pages Posted: 10 Jan 2009 Last revised: 5 Mar 2014

See all articles by Xia Chen

Xia Chen

Singapore Management University

Qiang Cheng

Singapore Management University

Alvis K. Lo

Boston College

Multiple version iconThere are 2 versions of this paper

Date Written: February 15, 2012

Abstract

There is little research on how accounting information quality affects a firm’s external financing choices. In this paper, we use the occurrence of accounting restatements as a proxy for the reduced credibility of accounting information and investigate how restatements affect a firm’s external financing choices. We find that for firms that obtain external financing after restatements, they rely more on debt financing, especially private debt financing, and less on equity financing. The increase in debt financing is more pronounced for firms with more severe information problems and less pronounced for firms with prompt CEO/CFO turnover and auditor dismissal. Our evidence indicates that accounting information quality affects capital providers’ resource allocation and that debt holders help alleviate information problems after accounting restatements.

Keywords: restatements, external financing, financial constraint

JEL Classification: G32, M41, M43

Suggested Citation

Chen, Xia and Cheng, Qiang and Lo, Alvis K., Accounting Restatements and External Financing Choices (February 15, 2012). Contemporary Accounting Research 30 (2): 750-779, Summer 2013, Available at SSRN: https://ssrn.com/abstract=1325261 or http://dx.doi.org/10.2139/ssrn.1325261

Xia Chen (Contact Author)

Singapore Management University ( email )

60 Stamford Rd.
Singapore 178900
Singapore

Qiang Cheng

Singapore Management University ( email )

60 Stamford Road
Singapore, 178900
Singapore

Alvis K. Lo

Boston College ( email )

Carroll School of Management, Fulton 542
140 Commonwealth Ave.
Chestnut Hill, MA 02467
United States
617-552-8674 (Phone)

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