Do post-restatement firms care about financial credibility? Evidence from the pre- and post-SOX eras |
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Authors: | Ken Y Chen Randal J Elder Shengmin Hung |
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Institution: | 1. College of Management, National Taiwan University, Taiwan;2. Whitman School of Management, Syracuse University, United States;3. School of Business, Soochow University, Taiwan |
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Abstract: | This study examines whether negative-market-reaction firms in the year following restatement announcements adopt more conservative financial reporting to respond to their financial reporting credibility crisis, especially in the post-SOX era. Using Basu’s (1997) measure of conservatism, we find that negative-market-reaction firms in the year following restatement announcements report their financial statements more conservatively in the post-SOX era, as the market reaction following restatement announcements becomes more severe. We also find that as the negative market restatement reaction becomes more severe, negative-market-reaction firms using a Big N auditor in the year following financial restatements report their financial statements more conservatively in the post-SOX era. |
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