Research on Impact of Financial Restatement on Firm Value in Chinese Listed Firms

Abstract

We examine the association between financial restatement and firm value, based on a sample of firms that restated financial statement in Chinese listed firms between January 2005 and December 2009. Using Tobin’s Q as a proxy for firm value in the end of restatement year, we find firm value in restating firm is significantly lower than firm value in non-restating firm, showing that uncertainties arise and management integrity declines after restatement announcement, which indicate that adverse consequences caused by financial restatement is beyond short term, long-lasting actually. Besides, we study several characteristics in restatement sample and find there exist an inversed U-shaped relation between firm value and unsigned restatement amount, that is to say, as unsigned restatement amount increases, firm value ascends first then descends. However, we don’t find that decreasing firm value caused by financial restatement is more pronounced for firms with core account (income decreasing) restatement than for firms with other account (income increasing) restatement.