Contagion effect of restatements through common directorships
Publication Type
Conference Paper
Publication Date
8-2010
Abstract
We predict that when a restatement is disclosed, information on the lower monitoring quality of the directors at the restating firms (“tainted directors”) can transfer to other firms these directors also serve on (“contagion firms”), and that this information transfer causes investors to reassess the credibility of the contagion firms’ financial reporting. Consistent with our predictions, we find that restatements at the restating firms also induce negative stock price reactions at the contagion firms. The stock price reactions are more negative if the contagion firms have lower financial reporting quality or if the tainted directors serve on the audit committees of the contagion firms. Overall, our results are consistent with a contagion effect of restatements through common directorships.
Discipline
Accounting | Corporate Finance
Research Areas
Corporate Governance, Auditing and Risk Management
Publication
American Accounting Association Annual Meeting
City or Country
San Francisco, CA, USA
Citation
CHEN, Chih-Ying.
Contagion effect of restatements through common directorships. (2010). American Accounting Association Annual Meeting.
Available at: https://ink.library.smu.edu.sg/soa_research/786