Voluntary Disclosure of Disaggregated Balance Sheet and Cash Flow Information Around Restatements

48 Pages Posted: 14 Jan 2017 Last revised: 14 Mar 2019

See all articles by Kai Chen

Kai Chen

Wilfrid Laurier University - School of Business & Economics

Darren Henderson

Wilfrid Laurier University

Christine I. Wiedman

University of Waterloo

Date Written: March 11, 2019

Abstract

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

Chen, Kai and Henderson, Darren and Wiedman, Christine I., Voluntary Disclosure of Disaggregated Balance Sheet and Cash Flow Information Around Restatements (March 11, 2019). Available at SSRN: https://ssrn.com/abstract=2899193 or http://dx.doi.org/10.2139/ssrn.2899193

Kai Chen

Wilfrid Laurier University - School of Business & Economics ( email )

75 University Avenue West
Waterloo, Ontario N2L 3C5
Canada

Darren Henderson (Contact Author)

Wilfrid Laurier University ( email )

75 University Ave W
waterloo, ontario N2L 3C5
Canada

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
86
Abstract Views
611
rank
302,564
PlumX Metrics