Control Agency Conflicts,Economic Policy Uncertainty And Financial Restatements

Although stock market's supervision over financial restatement is intensified,financial restatements in listed companies are not reduced.In recent years,corrections of accounting errors and major adjustments to core accounts like net profits and retained earnings have taken place in many listed companies,inflicting heavy losses on investors.Financial restatement is caused by opportunist behaviors within the companies and conflits over control right are main agency conflicts in Chinese market.The fiercer the conflict gets,the more opportunist motivations and behaviors there will be in the company,and this will lead to financial restatement.At the same time,the continuous downturn of economy and the complexity of international landscape are increasing the uncertainty of economic policies.With external environment constantly changing,it is harder for business owners and managers to decide the future of the companies,and thus altering accountants' behaviors.Set against a background of economic policy uncertainty,this article focuses on the agency conflicts between controlling shareholders and other investors and discusses the influences of control agency conflicts on financial restatement,the influences of economic policy uncertainty on financial restatement and the regulating effect of control agency conflicts and economic policy uncertainty on financial restatement.Based on theoretical analysis,this article uses A-share non-financial listed companies in Shanghai and Shenzhen from 2009 to2017 as full samples and uses listed companies that have done financial restatements as subsamples.With multiple measuring methods,this article conducts empirical experiments and robust tests on the hypotheses.The conclusions are as follows:Firstly,financial restatement is a common phenomenon among listed companies.Compared to those in midwestern areas,companies in developed areas conduct less financial restatements.Financial restatements are imbalanced among different industries.Correction announcement is the most common form of financial restatement.A substatial amount of restatement announcements involve errors in financial statements and surplus adjustment,which might incur negative reactions in the market.Secondly,the influnces of control agency conflicts on financial restatement are as follows: 1,Control agency conflicts has significant positive correlations with the possibility of financial restatements.It shows that the control agency conflicts plays an obvious stimulating role in the generation of financial restatement.2,Control agency conflicts has significant positive correlations with the possibility of correction of accounting errors in the companies in question;Control agency conflicts has significant positive correlations with the retained earnings adjusted in the companies in question;Control agency conflicts has significant positive correlations with the lags of restatement announcements;Control agency conflicts has significant positive correlations with the possibility of the companies in question announcing bad news.the above shows that the more serious the control agency conflicts in the restatement company is,the more the types of accounting errors will be restated,and the greater the range of restatement adjusted earnings will be.the restatement announcement is more untimely and sends more bad news to the market.3,In general,the positive influences of control agency conflicts on the seriousness of financial restatement are more significant in state-owned companies,companies of low marketization level and companies with low competitiveness in the industry.Thirdly,the influences of economic policy uncertainty on financial restatements are as follows: 1,Economic policy uncertainty has significant negative correlations with the possibilities of financial restatements.It shows that economic policy uncertainty has a significant inhibitory effect on the occurrence of financial restatement.2,Economic policy uncertainty has significant negative correlations with the possibilities of correction of accountign errors in the companies in question;Economic policy uncertainty has significant negative correlations with the retained earnings adjusted in the companies in question;Economic policy uncertainty has significant negative correlations with the lags of restatement announcements;Economic policy uncertainty has significant negative correlations with the possibilities of the companies in question announcing bad news.The above indicates that with the increase of economic policy uncertainty,the restatement of the types of accounting errors in the restatement content will be reduced,the smaller the range of restatement adjusted earnings,the more timely the restatement announcement will be,and the less bad news will be transmitted to the market.3,The negative influences of economic policy uncertainty on financial restatements are more significant in companies of high marketization level and companies with high competitiveness in the industry.Fourthly,the regulating effect of control agency conflicts and economic policy uncertainty on financial restatements are as follows: economic policy uncertainty has no significant modedrating effect on the positive correlation between control agency conflicts and financial restatement.The increase of economic policy uncertainty can significantly suppress the positive correlations between control agency conflicts and restatement errors,restatement surplus,restatement lags and restatement nature.Enlightened by the research conclusion,the following policy recommendations are proposed from the perspectives of country,market and enterprise:To begin with,relevant policies and laws for the disclosure of annual report should be optimized to match market benefits of illegal disclosures with their costs.Also,procedural norms such as application guides and norm interpretations should be prepared and issued,so that accounting professional judgments applying among enterprises can be specified in a concrete way.Next,a favorable market environment should be created;also,the corporate governance role of the institutional environment should be comprehensively fulfilled.At the same time,by promoting the advancement of the regulatory links of management organizations,high-risk enterprises should be investigated and predicted in advance using use modern information technologies.And the disclosure of restatement announcements should be guided in normalization.Thirdly,internal and external corporate governance systems should be improved through reforming staff composition and salary systems of the internal governance organization,and effectively play the independent and prudential role of the independent director.Moreover,integration and adjustment of accounting firms should be enhanced to lead the improvement of audit quality in order to safeguard the independence of external audit work.