Study On The Earnings Quality Characteristics And Economic Consequence Of The Firms With Financial Restatements

Information is the core factor of modern capital market, determining the allocation of resources of capital market.Accounting information is one of the main sources of informationon on which the investors make decisions, so high-quality accounting information is the main cornerstone of the normal operation of the modern capital market,and the important security of the full protection of the interests of investors.Financial reporting of listed companies are the important carrier of information disclosurements and the main methods to obtain firm information of investors.However, in recent years the phenomenon of financial restatements showing a "spread" the situation, both home and abroad. The number and proportion of the financial restatements of listed companies are rising each year, attracting wide attention from scholars.A series of foreign studies show that, the financial restatements mean that the financial statements are not reliable and with low quality,and usually result in serious economic consequences such as the loss of market value of the company, and the rise of the cost of capital.The situation of financial restatements of China in recent years is not optimistic.The number of the financial restatements of Chinese listed companies is large and with high proportion,covering wide range and great impact.Different from the sound foreign financial restatement system and developed capital markets, the Chinese financial restatement is still not perfect and the capital market is also in a transition stage of development, which triggered a series of problems, how is the accounting information quality of Chinese firms restatementing?What will be the economic consequences of financial restatement?Will the investors believe the accounting information of the firms with financial restatement?What will the impact of financial restatements on the firms' behavior? Whether there are differences in accounting information quality or economic consequences among the restatement firms classified according the reasons and content of restatements? The relating Chinese studies are still rare, so this paper studies those issues in the context of China systems. This paper selects the firms those report financial restatement announcement of Annual Report in2005-2009, and makes comparing study on firms without financial restatement with the same size in the same industry.Firstly, this paper analyzes the quality characteristics of firms with financial restatement. Empirical data show that the earnings persistence of firms with financial restatements is lower the comparing group, with more serious earnings management presenting as the manipulated accruals returns. Overall,the accounting returns quality of irms with financial restatement is lower.Secondly, this paper tests the relationship between financial restatements and earnings response coefficients, finding that financial restatements lead decreased earnings response coefficients, indicating that the decline of investor confidence and dependency on the earnings information of listed companies.Furthermore, this paper study the impact of financial restatements on financing behavior of listed companies, finding that financial restatement raised the cost of equity capital of listed companies, but insignificant impact on the debt maturity structure of listed companies, indicating that the capital market pay attention and response to the financial restatements, but the bank loan financing as an important financing channels of listed firms is not effected largely. Furthermore, to research deeply, this paper classifies the restatement companies in difference groups. According to the reason of restatements, they are divided into voluntary and involuntary companies. And according to the content of restatements, they are divided into core accountant and non-core accountant restatement companies. The study based on grouping research discoveries the accounting information quality of involuntary restatement group and core accountant restatement group is worse. According to the analysis with grouping research on economic consequences, this paper discoveries the investor pays more attentions to the core accountant restatement companies, with the lower earnings response coefficient, the higher cost of the equity capital,and the shorter debt maturity structure. While the there is no significant difference between voluntary and involuntary restatement companies.Finally, this paper offer policy recommendations. This paper shows that in order to regulate the financial restatement behavior of listed companies in China, joint efforts of all parties are needed. To strengthen the construction and supervision of the regulation of financial restatement, and optimize corporate governance structure, the key is to increase punishment of disclosure irregularities of listed companies. Stakeholders of listed companies such as investors, banks creditors should concern about and constraint the financial restatements behavior,increasing the cost of financial restatements, leading the listed companies to voluntarily improve the information quality from the rational economic person point of view, enhancing information quality of the whole Chinese capital market to ensure a fair and public equity capital markets, to protect the interests of investors and other stakeholders, to promote the development of capital markets.