Voluntary Disclosure of Disaggregated Balance Sheet and Cash Flow Information Around Restatements
48 Pages Posted: 14 Jan 2017 Last revised: 14 Mar 2019
Date Written: March 11, 2019
We examine changes in voluntary disclosure of balance sheet and cash flow (BS/CF) information in earnings releases around restatement announcements. We consider these disclosures to be particularly relevant in the restatement context since they help investors interpret accruals and assess reporting quality at a time of high information uncertainty. We find that BS/CF disclosures drop significantly for the five quarters following a restatement announcement. The drop is most evident for severe restatements and for firms where litigation risk is high, while high-reputation-risk firms experience a lesser drop. We next consider the impact of BS/CF changes on earnings informativeness (earning response coefficients, ERCs) and find significantly lower post-restatement ERCs for firms ceasing BS/CF disclosure, but not otherwise. Overall, we argue that litigation concerns provide a strong disincentive for disclosure following restatement announcements. Our findings add to a growing literature on the importance of disaggregated BS/CF information in interpreting accruals.
Keywords: restatements, voluntary disclosure, earnings response coefficients
JEL Classification: M41
Suggested Citation: Suggested Citation