Corporate Governance and Financial Disclosure: The Case of Stealth Restatements

• In Event: Financial Reporting--Innovative Issues

Abstract

This paper investigates the relationship between weak corporate governance and stealth restatements. Restatements are significant and costly events, and prior literature shows a positive association between weak corporate governance and restatements in general (Abbot et al. 2004; Agrawal and Chadha 2005; Farber 2005). This study seeks to add to the existing literature by measuring specific corporate governance determinants and the effect on the financial restatements. Using a sample of 168 matched firms, we tested whether a firm with weak corporate governance would lead to a stealth restatement. While some studies have shown mixed results regarding weak corporate governance and the impact with stealth restatements, our findings suggest that weak corporate governance is directly associated with stealth restatements.
Keywords: Corporate Governance, Stealth Restatements, Section 409.

Authors

• Kathleen Rankin, Morgan State University

• Mohammad Tavakolifar, Morgan State University