Board Characteristics and Financial Report Restatements

Authors: Min-Jeng Shiue; Chan-Jane Lin; Hsiu-Feng Lin
Journal: Chiao Da Management Review. Dec. 2008, 28(2): 73-103.
Keywords: Restatements, Corporate governance, Board size, The competence of directors
Abstract:
The purpose of our research is to examine effects of board characteristics on the financial statement quality by using restatements as a proxy. We collect restatements sampled from listed companies in Taiwan between 1997 and 2002 and use a matched-sample LOGISTIC analysis to validate the hypotheses. The empirical results find a significantly positive (negative) correlation between the board size (competence of directors) and the probability of restatements. In addition, this study shows that firms with higher deviation between cash flow rights and control rights are more likely to re/write their financial statements. Nonetheless, the audit firm size is uncorrelated with the probability of restatements. The main implication from the above findings is that enhancing the competence of board directors would improve the quality of financial statements while increasing the board size may have an adverse effect.