Publication Type

Journal Article

Publication Date

3-2012

Abstract

There is little research on how accounting information quality affects a firm’s external financing choices. In this paper, we use the occurrence of accounting restatements as a proxy for the reduced credibility of accounting information and investigate how restatements affect a firm’s external financing choices. We find that for firms that obtain external financing after restatements, they rely more on debt financing, especially private debt financing, and less on equity financing. The increase in debt financing is more pronounced for firms with more severe information problems and less pronounced for firms with prompt CEO/CFO turnover and auditor dismissal. Our evidence indicates that accounting information quality affects capital providers’ resource allocation and that debt holders help alleviate information problems after accounting restatements.

Keywords

earnings restatements, external financing

Discipline

Accounting

Publication

Contemporary Accounting Research

ISSN

1911-3846

Identifier

10.1111/j.1911-3846.2012.01171.x

Included in

Accounting Commons

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