How Financial Statement Restatements and Voluntary Product Certifications Influence Consumer Purchasing Intentions

• In Event: Reporting Accuracy: Causes and Consequences

Abstract

Restatements are widely studied in prior literature and associated with a plethora of negative outcomes. However, prior literature is silent on whether consumers concern themselves with management’s ability to provide reliable financial information and what downstream effects this inability has on perceptions of the company’s products. Using real-world consumers of credence goods, we conduct an experiment to investigate the effects of restatements and third-party voluntary, non-financial certification on consumers’ purchasing intentions and organizational legitimacy perceptions. Organizational legitimacy perceptions are particularly relevant for producers of credence goods as consumers cannot determine product quality, even after consumption. We find misstatements serve as surrogate indicators of product quality and are detrimental to consumers’ purchasing intentions and organizational legitimacy perceptions. Voluntary third-party certification fully (partially) mitigates the negative effects of error (irregularity) misstatements on consumer purchasing intentions, not by restoring consumers’ organizational legitimacy perceptions but by providing additional product and/or production process quality information.

Authors

• Clark J Hampton, University of South Carolina

• Adi Masli, University of Kansas

• Chad Matthew Stefaniak, University of South Carolina