The Research Of Fiancial Restatement And Accounting Conservatism

High quality of accounting information has always been the focus of the one ofthe securities market. The accurate, reliable, timely and complete information hasalways been regarded as the necessary to ensure an effective operation of capitalmarkets. But recently, the phenomena of financial restatements appear frequently,which increases the information risk and uncertainty in investors’ decision-makingprocess. And also, it has raised wide concerns from the theoretical circles and thepractical sides. In view of the domestic capital markets started late, and thedifferences between the domestic institutions and the foreign, as well as the cultures.Therefore, if it is still valid of the relevant conclusions for the foreign market in thedomestic markets, which need empirical tests essentially. The economic consequenceswhich resulted from the financial restatement announcements such as the reducedmarket value, the increased in costs of capital, the punishment of the management(penalty or dismissal), will then affect the behavior or the enterprises. Themanagement of the restating company is likely to engage in actions to repair thecorporations’ reputation as well as their own, such as improving corporate governance,enhancing accounting conservatism and so on.After our sorting out of the relevant research literatures, basing on theconditional accounting conservatism and the model of Basu(1997), we test theaccounting conservatism before and after the financial restatement announcementafter improved the model, by using all the financial restatements companies(614samples) in A shares, during the period between2007and2009.Then, using the improved earnings change metric and adding the matchingsamples with the corporations which didn’t disclose the restatements, we verified ourhypothesis. And by building the alternative corporations variables, such as the largestproportion of shareholdings, the proportion of shareholdings of directors on the board,the proportion of the independent directors and so on, we tested the impactions of thecorporation governance on accounting conservatism, and achieved desired results.Our empirical results showed that:(1) Corporations which disclosing restatementswould increase conservatism subsequent to restatements;(2) The corporategovernance have a positive impact on the accounting conservatism. The improvement of corporate governance would enhance the conservatism level. Onthis basis, the paper also made some preliminary proposals for the current problems aswell as the limitations of this study.