Voluntary vs. Forced Financial Restatements: The Role of Board Independence

Posted: 8 Oct 2009

See all articles by Dalia Marciukaityte

Dalia Marciukaityte

Illinois State University

Samuel H. Szewczyk

Drexel University - Department of Finance

Raj Varma

University of Delaware - Department of Finance

Date Written: October 7, 2009

Abstract

Using a sample of companies that restated their earnings over the period 1997-2002, this study finds that the probability of voluntary as opposed to forced restatements is positively related to the independence of both the board of directors and the audit committee. Following both voluntary and forced earnings restatements, companies increase the proportion of independent directors on both the board and the audit committee; three years after restatements, both types of restating companies attain similar levels of director independence. Moreover, the study finds comparable postrestatement long-run stock performance for all restating and matched companies, which suggests that postrestatement enhancements to internal control systems help restore companies’ blemished reputations.

Keywords: Advocacy, Regulatory, Legislative Issues, Advocacy Issues, Corporate Governance, Financial Statement Analysis, Accounting and Financial Reporting Issues

Suggested Citation

Marciukaityte, Dalia and Szewczyk, Samuel H. and Varma, Raj, Voluntary vs. Forced Financial Restatements: The Role of Board Independence (October 7, 2009). Financial Analysts Journal, Vol. 65, No. 5, 2009, Available at SSRN: https://ssrn.com/abstract=1484824

Dalia Marciukaityte (Contact Author)

Illinois State University ( email )

Normal, IL 61790
United States

Samuel H. Szewczyk

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
215-895-1746 (Phone)

Raj Varma

University of Delaware - Department of Finance ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States
302-831-1786 (Phone)
302-831-3062 (Fax)

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