Financial Restatement And Corporate Governance Of Listed Company

The financial restatement defined as listed company rephrase or supplement some parts of the historical financial statements when find some errors exist in historical financial statements. Recent years, there are a lot of listed company published financial restatements in china, TCL Communication and Beijing Capital Company are representative cases. Many studies have shown that the occurrence of financial restatements will bring negative influence to the listed company, triggering a series of adverse economic consequences, Which is not good to the healthy development of the capital market. In order to provided more detail financial information about the company and warn the users of financial statement, when find some errors in the published financial report, listed company must use financial restatement to correct errors. But this action let investors questioned the reliability of the company’s previous financial statements. Thus force investors to doubt the company profitability of the company in the future or even re-estimate the financial status. Loss of investor confidence potentially possibly lead to serious downstream reactions like valuation falls, even leading to the edge of bankrupt like Enron and World Communications Inc..So, capital market and investors are pay close attention to financial restatement,and it also become one of the most important issue both in accounting practice area and academia area.There are two reasons for financial restatement,the one is objective reason relate to financial accounting error, the other is subjective reason relate to earning management. We can found that more than40%companies use financial restatement to adjust earnings. So the financial restatement is one of the important means of financial fraud. This paper argues that the financial restatement not only represents the company conduct a earning management, but also reveal the low efficiency of corporate governance. So what kind of company is likely to suffer financial restatement? And what is the governance characteristic of this company? This paper based on the "significant accounting errors" in financial statement of the listed company in china from2008to2010.Using shareholding structure, the board of directors characteristics, the board of supervisors characteristics and compensation contract hypothesis to explore what corporate governance structure is more likely to lead to financial restatements.This is an essay which effectively combines with both empirical analysis and normative analysis. Empirical analysis lists the most important empirical parts whereas normative analysis discuss theory parts.The first chapter is the introduction chapter, introducing the source of the topics, the structure of the essay,and the features and innovation.The second chapter is a research study which studies the research in home and abroad from three aspects, such as motives of financial restatement et al.The third chapter is the theoretical analysis which briefly introduces the basic theories:the principal-agent theory and the asymmetric information theory. Then define the concept of financial restatement and corporate governance. At last, in order to make a comparison, this chapter review the development of financial restatement in USA and china.The fourth and fifth chapters are the empirical analysis. According to the theory study, the fourth chapter put forward hypothesis to this essay, then chooses listed company’s financial data based on the pre-error period and post-restatement period as a sample, and make matching pair for the sample. Defines the dependent variable, explanatory variable and control variable.The fifth chapter uses statistical analysis and logistic regression model to test hypothesis.The sixth chapter summarize the results of the research,as well as the limitation of the essay. Then put forward some advise.This article’s innovation and contributions are as follows:First, the research method we used is a supplement to the existing study which only based on the post-restatement period. This essay not only research the relationship between financial restatement and corporate governance on post-restatement period, but also on pre-error period. Therefore, this paper conduct the research from four aspects.Integrate individual corporate governance factors into a more complete system so that the study is more comprehensive and thorough. Third, we choose data from2008to2010after the release of new accounting standards, so it can reflect the impact of the environment on a certain extent. Empirical research results prove that:(1)From the shareholding structure aspect, we can see ownership concentration lead to lower likelihood of accounting misstatement and restatement. The proportion of state-owned shares has negative correlation with accounting misstatement, no significant correlation with accounting restatement.(2)When CEO—chairman role is not split, the likelihood of accounting restatement is lower, the likelihood of accounting misstatement is higher; Frequency of board meeting has positive correlation with accounting restatement, negative correlation with accounting misstatement. The company which has audit committee have a higher likelihood with accounting restatement, no significant correlation with accounting misstatement.(3)Form the board of supervisors characteristics aspect, company with big board of supervisors has positive correlation with accounting misstatement, no significant correlation with accounting restatement. Frequency of supervisors’meeting has positive correlation with accounting misstatement and restatement.(4)From the compensation contract hypothesis aspect, executive compensation lead to lower likelihood of accounting restatement, no significant correlation with accounting misstatement. Higher managerial ownership lead to lower likelihood of accounting restatement and misstatement.This essay also has some shortcomings, I hope that I could improve these in the later study:(1)Study sample can be further selected in order to be more reasonable.(2)Research data and content can be extended.(3)Comprehensively considerate the research index.