Accounting Restatements and Corporate Cash Policy

Posted: 18 Apr 2015 Last revised: 1 May 2015

See all articles by Huili Chen

Huili Chen

City University of Hong Kong (CityUHK)

Zhihong Chen

Hong Kong University of Science and Technology

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Yuan Huang

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: April 17, 2015

Abstract

Using a difference-in-differences approach, we find that firms’ cash holdings significantly increase after announcements of irregularity-related restatements. The increase is more pronounced for firms with a higher precautionary saving demand. The irregularity firms significantly reduce investment and external financing after the restatements. When they fall short of cash reserves, they significantly increase cash savings after the restatements but do not change payout. In contrast, when they have excessive cash, there is weak evidence that they appear to reduce cash savings and increase payout after the restatements. Finally, we find that the market value of cash holdings increases after the restatements. Overall, our results suggest that the firms increase cash holdings after the restatements because cash reserves become more valuable in safeguarding against future shortfalls of internal funds. Our study contributes to the literature on the effect of financial reporting credibility on corporate real decisions.

Keywords: cash policy, financial reporting quality, accounting restatement, read decision

Suggested Citation

Chen, Huili and Chen, Zhihong and Dhaliwal, Dan S. and Huang, Yuan, Accounting Restatements and Corporate Cash Policy (April 17, 2015). Available at SSRN: https://ssrn.com/abstract=2595697

Huili Chen

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Zhihong Chen (Contact Author)

Hong Kong University of Science and Technology ( email )

Clear Water Bay
Kowloon
Hong Kong
Hong Kong
(852)-2358-7574 (Phone)
(852)-2358-1693 (Fax)

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Yuan Huang

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
400
PlumX Metrics