Journal article
Do Restatements Improve the Persistence of Earnings and Its Components?
Accounting perspectives, v 16(4), pp 371-427
01 Dec 2017
Abstract
We examine the persistence of earnings in the pre- and postrestatements periods and find that restatements generally improve the persistence of earnings. We also examine how the persistence of earnings is influenced by restatements that are voluntarily initiated by managers (voluntary restatements) and those forced onto firms by outsiders (mandated restatements). Our analysis shows that voluntary restatements are followed by improvement in the persistence of earnings and that mandated restatements are not followed by improvement in earnings persistence. We find results that are consistent with the main finding when we decompose earnings into accruals and free cash flows. We use a difference-in-difference research design and confirm that the improvement in the postrestatement persistence of earnings components exceeds that of control firms only for voluntary restatements. Further, we show that our results are robust after controlling for endogeneity of voluntary restatements by including a two-stage model using the Heckman () method where we first estimate the likelihood of manipulation detection and analyze change in persistence conditional on the first stage analysis. The improvement in earnings persistence around voluntary restatements is not driven by the level of earnings decomposition or a subgroup of voluntary restatements. The results support our hypothesis that voluntary restatements have distinctly different economic consequences from mandated restatements.
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Details
- Title
- Do Restatements Improve the Persistence of Earnings and Its Components?
- Creators
- Gordian A. Ndubizu - Drexel UniversityMenghistu Sallehu - Eastern Illinois University
- Publication Details
- Accounting perspectives, v 16(4), pp 371-427
- Publisher
- Wiley
- Number of pages
- 57
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Accounting
- Web of Science ID
- WOS:000417836900005
- Scopus ID
- 2-s2.0-85037739910
- Other Identifier
- 991019168039404721
InCites Highlights
Data related to this publication, from InCites Benchmarking & Analytics tool:
- Collaboration types
- Domestic collaboration
- Web of Science research areas
- Business, Finance