Empirical Evidence on Repeat Restatements
June 6, 2014 Leave a comment
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.
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