Empirical Evidence on Repeat Restatements

Accounting Horizons Vol. 28, No. 1 DOI: 10.2308/acch-50615 2014 pp. 93–123

Empirical Evidence on Repeat Restatements

Rebecca Files, Nathan Y. Sharp, and Anne M. Thompson

SYNOPSIS: This study examines the characteristics and market consequences of repeat

restatements. We find that 38 percent of the restating companies in our sample restate at

least twice between 2002 and 2008, and 31 percent of repeat restatement firms restate

three or more times during the same period. Our tests identify several auditor and

restatement characteristics that distinguish single from repeat restatements at the time of

the first restatement. Repeat restatements are more likely among clients of non-Big N

auditors and those with lower ex ante accounting quality. However, firms that switch

auditors between the end of their misstatement period and the restatement announcement

are less likely to experience repeat restatements. Although subsequent restatements tend

to be less severe than the first in a series of restatements, firms suffer similar declines in

stock prices with up to three restatement announcements. In addition, firms often restate

the same fiscal periods multiple times, and these ‘‘overlapping’’ restatements are more

frequent when managers are distracted by other difficulties, such as discontinued

operations or internal control weaknesses. Our findings should be valuable to investors,

regulators, and other parties interested in repeat restatements. We provide research

design recommendations for researchers to incorporate in future research.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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