The Study In The Restraint Effects Of Corporate Governance On Listed Companies Financial Restatement

Since the effective market hypothesis put forward, the high quality of accounting information has been regarded as the key to ensure the securities market efficiency. While the financial reports, as a carrier of a company’s accounting information to public, are the main means for the market investors to obtain the company information. In recent years, the phenomenon of false, misleading or omitting information leading to paraphrase the financial reports is becoming increasingly fierce, which causes the wide attention of all walks of life. Therefore, how to effectively restraint the Listed Companies using the financial statement restated to paraphrase and control the profit as well as varnish accounting information has become the common problem which the account academic and practical researchers have concerned. As to the problem, the previous researchers have put forward the numerous reasons which led to paraphrase, such as:lack of integrity, the deficiencies of systems, the driving of interests and so on. According to these problems, much efforts has been taken by regulators and related personnel, but the phenomenon of financial statements restated is still increasing. It is just because the problems have not been solved from the source. This paper is designed to explore the source of the financial statements restated in our Listed Companies from the perspective of corporate governance, aiming to make a contribution to improving the corporate governance mechanism and the stock market in the quality of accounting information.First of all, through analyzing increasingly fierce the phenomena of the financial statements restated in the securities market, the theme of the paper is drawn out:the financial statements restated. Then the paper is designed to analyze the state of our A-shares-Listed Companies’financial statements restated from the aspects of the quantity, scale, industry, the audit opinions and others aspects from2007to2009and find that there exists the financial statements restated in totally429within three years, accounting for about10%of the total number of listed companies; while higher percentage of financial statement restated occurrence is mainly in the A kind of industry of farming, forestry, animal husbandry and fishery and the M kind of comprehensive industry. From the times of the financial statement restated occurrence, about35%of the companies has happened more than once restatements in the past three years, and8firms has happened restatements for three consecutive years. It indicates that the problem of the financial statements restated is still serious. Then the paper refers to previous research literature, reviews the researches on the financial statements restated and corporate governance at home and abroad and summary the existed research results to find the direction of the research:company governs and the restatement of financial statements. Based on what have mentioned above, the paper explains the theoretical foundation of company governs and the restatement of financial statements in detail to lay a foundation for the empirical studies. The theory is mainly from three aspects to analyze the concept of restatement of the financial statements, the economic consequences caused by the restatement of financial statements as well as the relationship between corporate governance and financial statements restatement, which are the arguments of the paper.Second, the paper is designed to explore corporate governance composite index as well as the relationship between the basic elements of corporate governance and financial statements restated from the view of overall and part. Taking the financial statements restated A-shares-Listed Companies’as experimental samples, the paper is designed to find matching samples according to the standard of the equal industry and scale (within30%differences). Through logistic regression analysis of the basic elements of corporate governance and restatement of the financial statements, the paper chooses four primary indexes including the structure of equity, the behavior of shareholders’, the features of the board of directors and other management as well as twelve secondary indexes. covering the proportion of tradable shares, the proportion of state-owned shares, ownership concentration, the equity balance degree, the number of meetings of shareholders, the size of the board, the number of board meetings, the chairman and CEO part-time, independent directors scale, professional committee, the audit opinions, executives of holdings, to research the preventive effect of company governance on the restatement of the financial statements. The study found that the proportion of state-owned shares and the board size are positively related to the restatement of financial statements, while the size of the independent directors, the Professional Committee and the number of executives holding are negatively related to the financial statements restated. The paper indicated that the higher the proportion of state-owned shares, the greater is the likelihood of restatement of financial statements. Then it states the necessity of the reform of the shares for China. From the results of the current study, although Share reform program has been implemented, the effect is not significant now. There is also a significant positive correlation between the size of the board and the restatement of the financial statements, which shows the greater the size of the board, the lower is the efficiency, the more serious is following the trend of the behavior. What mentioned above is only a remedy after the company has happened to problems, but it does not play its advance planning function. The size of the independent directors and the Professional Committee are negatively related to the financial statements restated, which shows that since2002the implementation of the system of independent directors and professional committee policy have achieved initial success; the objectivity of the outside independent directors and the professionalism of the professional committee to some extent can avoid the occurrence of restatement of the financial statements. Both of them are playing an important role in the structure of corporate governance However, this article assumes that the correlations of the proportion of the outstanding shares, ownership concentration, the equity balance degree, the number of meetings of shareholders, the number of meetings of the Board, Chairman and CEO of part-time and the audit opinion on the financial statements restated are not significant.The company governance mechanism itself exists complexity and variability. To further explore the relationship between corporate governance as a whole and the financial statements restated, it needs to build an index which can represent the comprehensive effect of corporate governance to research and analyze. Based on the research of the fourth chapter, the paper uses the analysis method of principal component to calculate the total score of the factors which is on behalf of the comprehensive effect of the company governance, though regression analysis of the index of comprehensive evaluation of corporate governance and financial statements restated. It explores the relationship between them from the perspective of corporate governance on the whole. The study found that there was a negative relation between the index of comprehensive evaluation of corporate governance and financial statements restated, particularly significant on the level of10%. The better corporate governance, the lower the possibility of financial statements restated happened. And then it proves that the theme of this paper, namely the corporate governance has a preventive effect on the listed companies’financial statements restated to some extent.Lastly, combining with China’s securities market environment, we can draw a conclusion and put forward some suggestions on the company governance mechanism and the system of independent directors, professional committee and restated financial report, audit opinions and other aspects of the policies and advice. At present the system of the financial statements restated of our country and the act of disclosure is not perfect, so it is not easy to supervise and research to collect data. Therefore, the construction of the system of restatement of the financial statements and the act of normative disclosure are tricky problems to be solved.Of course, due to the limitations of time and effort, this study also exist some shortcomings, for example there are many indicators to measure of corporate governance in the variable selection, but due to China’s stock market information disclosure is weak as well as some of the indicators with objectivity definition. During the regression and principal component analysis, the paper select only12variables which is easy to obtain data rather than other variables. As regarded the choice of restatement of financial statements of companies, because of manual data processing, it is inevitable to make errors, which may affect the objectivity of the results. As to empirical aspects, the method of principal component analysis can better overcome the deficiencies of the simple arithmetic average method and the analytic hierarchy process, but as a statistical method, it exists certain limitations.The contribution of this study is to provide empirical data for the implementation of the policy effect of the guidance issued by the China Securities Regulatory Commission in2001and2002,《the establishment of the independent director system in listed companies》 and 《Corporate Governance Guidelines》 Also it proves the necessity of implementing the share reform program, executives of the feasibility of holding such executive incentives. Have a preventive effect of corporate governance on the financial statements restated to a certain extent. Listed companies should step up the improvement of the corporate governance structure from the source to eliminate the chance of financial restatements. The proportion of shares, the board size is positively related to the Restatement of financial statements, a negative correlation to the scale of independent directors, the Professional Committee, the proportion of managerial ownership and financial restatements. The guidance and Governance Guideline to the system and the Professional Committee of independent directors in companies listed on the policy has yielded results, listed companies should continue to maintain and improve the independence and professionalism of the board of directors.