Empirical Evidence on Repeat Restatements

Posted: 25 Aug 2013

See all articles by Rebecca Files

Rebecca Files

University of Texas at Dallas

Nathan Y. Sharp

Texas A&M University - Department of Accounting

Anne Thompson

University of Illinois at Urbana-Champaign

Date Written: August 23, 2013

Abstract

This study examines the characteristics and market consequences of repeat restatements. We find that 38 percent of the restating companies in our sample restate at least twice between 2002 and 2008, and 31 percent of repeat restatement firms restate three or more times during the same period. Our tests identify several auditor and restatement characteristics that distinguish single from repeat restatements at the time of the first restatement. Repeat restatements are more likely among clients of non-Big N auditors and those with lower ex ante accounting quality. However, firms that switch auditors between the end of their misstatement period and the restatement announcement are less likely to experience repeat restatements. Although subsequent restatements tend to be less severe than the first in a series of restatements, firms suffer similar declines in stock prices with up to three restatement announcements. We also find that firms often restate the same fiscal periods multiple times, and these “overlapping” restatements are more frequent when managers are distracted by other difficulties, such as discontinued operations or the disclosure of an internal control weakness. Our findings should be valuable to investors, regulators, and other parties interested in the characteristics of repeat restatement firms. We provide research design recommendations for researchers to incorporate in future research.

Suggested Citation

Files, Rebecca and Sharp, Nathan Y. and Thompson, Anne, Empirical Evidence on Repeat Restatements (August 23, 2013). Accounting Horizons, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2315061

Rebecca Files

University of Texas at Dallas ( email )

800 West Campbell Road, SM 41
Richardson, TX 75080-3021
United States
9728835818 (Phone)

Nathan Y. Sharp

Texas A&M University - Department of Accounting ( email )

4353 TAMU
College Station, TX 77843-4353
United States
979-845-0338 (Phone)

Anne Thompson (Contact Author)

University of Illinois at Urbana-Champaign ( email )

360 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
1,108
PlumX Metrics