Abstract
AbstractThis study investigates whether prompt discovery and disclosure of earnings restatements is associated with greater postârestatement financial reporting credibility. We measure the timeliness of restatement detection by the length of time between the end of the misstated period and the subsequent restatement announcement. We document that shorter detection periods are significantly associated with highâquality corporate governance characteristics and executive and/or auditor turnover, but not with characteristics of restatements. We also find that firms with shorter detection periods exhibit a more moderate decline in the information content of earnings following restatement announcements relative to firms with longer detection periods, and that detection period length has an incremental effect on the information content of earnings relative to executive and/or auditor turnover alone. In addition, we find that restatement disclosures are more timely following the implementation of the SOXâera reforms, and that only firms with shorter detection periods experience more moderate postârestatement declines in the information content of earnings following the implementation of the SOXâera reforms. The results from this study suggest that the timeliness of restatement detection and disclosure is associated with greater financial reporting credibility following restatements.
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