Corporate Governance and Financial Report Restatements

The purpose of this study is to observe the impact of corporate governance characteristics on financial report restatements and explore if more competent corporate governance will lower the occurrence of restatements. The research sample consists of the listed companies which had restated their financial reports because of ‘actual misstatements’ between 2003 and 2007, and matching listed companies which had not restated financial reports but in the same industry and with similar size to their counter parts in the same time period. The Logistic regression is used to test this research’s hypotheses. The empirical results find that the tenure and the active level of the board directors exhibit significant and negative association with the likelihood of restatements. However, the boards with financial and accounting expertise and their independent level have no strong effect on restatements. Besides, this study finds that the deviation between the board seats control and the cash-flow rights will not lead to restatements. Nevertheless, when the company confronts operating loss, the deviation will provide an incentive to misstate the financial reports. Finally, the CPA’s tenure and rotation have no significant association with restatements. The findings imply that enhancing the board’s responsibility and facility will improve the financial reports’ quality. Moreover, CPA’s tenure and rotation have no clear relation with restatements. For this reason, whether mandatory rotation is necessary should be studied more carefully.