Research On The Effect Of Geographical Proximity And Audit Quality On Financial Restatement

Information disclosure is an important way to alleviate the principal-agent problem caused by the separation of ownership and control.Financial restatements represent the poor quality of financial information disclosure,which cannot meet the goal of financial information,will damage the rights and interests of investors,and affect the efficiency of resource allocation.By studying the influence of geographical proximity and audit quality on financial restatements,this paper attempts to interpret the influence factors of financial restatement from a new perspective.By reviewing the previous literature,this paper finds that the research on the geographical factors of financial restatements is still insufficient.The boundary effect of information spillover caused by geographical proximity makes listed companies further away from China Securities Regulatory Commission(CSRC)bureaus and financial centers more difficult to perceive supervision departments' activities.It is also harder for listed companies further away from financial centers to obtain relevant nonstandardized information to understand laws and regulations.Thus,these listed companies tend to restate.In this paper,the geographical proximity of financial restatement is divided into two variables: distance from the financial center and distance from local CSRC bureau.Standardized methods are adopted to deal with them.After using probit regression,it was found that: the further the company is from financial centers,the higher the possibility of financial restatement;the further the distance from local CSRC bureau,the higher the possibility of financial restatement of the company.In order to study the research on different types of financial restatements in geographical proximity,financial restatements are divided into two categories based on the following standard.One is the restatement that the net profit is negative or the restatement is caused by the rectification ordered by the regulatory department,and the other is the restatement that the net profit is not negative and no rectification is ordered by the regulatory department.Using ordered probit regression,it was found that the further the company was from the financial center,the higher the possibility of the first type of financial restatements in this paper;the further the company is from the local CSRC bureau,the higher the possibility of the first type of financial restatements in this paper.The geographical distance leads to the aggravation of information asymmetry and affects the transmission of information,and external audit is an important way to supervise clients and reduce information asymmetry to provide reasonable assurance.This paper studies how audit quality adjusts the relationship between geographical proximity and financial restatement by using the scale of accounting firm as the proxy variable of audit quality.The results show that the influence of the distance between the listed company and the financial center on the financial restatement is negatively adjusted by the audit quality.The influence of the distance between the listed company and the local CSRC bureau on the financial restatement will be negatively adjusted by the audit quality.In order to verify the robustness of the model,this paper also replaced the distance measurement method between the listed company and the financial center,and the regression results were consistent with the results of the main model.In order to control the bias of listed companies in the selection of accounting firms,this paper adopts the propensity score matching method to construct the paired samples,and the regression results are consistent with the main model.In addition,grouping regression was used to test the moderating effect of moderating variables,and the regression results were consistent with the main model.Finally,the paper puts forward countermeasures and suggestions on the influence of geographical proximity on financial restatements for the managers,investors and creditors,regulatory departments and accounting firms,and analyzes the deficiencies and future prospects of the research.