Changes in the predictive ability of earnings around earnings restatements

Kevin W. Hee

Review of Accounting and Finance, 2011, vol. 10, issue 2, 155-175

Abstract: Purpose - The purpose of this paper is to investigate whether earnings restatements have a larger effect on the earnings quality (proxied by persistence) of restating firms relative to similar non‐restating firms and if restated earnings are more persistent than the originally reported earnings. Design/methodology/approach - Cross‐sectional earnings persistence models are used to analyze how earnings persistence changes around restatements for both the originally reported earnings and the new restated earnings numbers. The study looks at restatements from 1997 through 2006. Findings - The findings show that restating firms exhibit a larger increase in earnings persistence from the two‐year period before to the two‐year period after the restatements. Results also show that the restated portion of earnings is incrementally persistent relative to the originally reported earnings and the incremental persistence, although mitigated, is still significant after the passage of the Sarbanes‐Oxley Act. In addition, the evidence shows that core account restatements are associated with more persistent earnings relative to non‐core restatements in the two‐year period after the most recent restatement year. Originality/value - The paper presents the first study to examine earnings restatements' impact on the future earnings persistence of restating firms in the context of the restated financial period as opposed to the restatement announcement period.

Keywords: Earnings; United States of America; Accounting procedures; Financial reporting (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:rafpps:v:10:y:2011:i:2:p:155-175

DOI: 10.1108/14757701111129625

Access Statistics for this article

Review of Accounting and Finance is currently edited by Nawazish Mirza

More articles in Review of Accounting and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().