How Do Investors Respond to Restatements? Repairing Trust Through Managerial Reputation and the Announcement of Corrective Actions

Anna M. Cianci, Shana M. Clor-Proell, Steven Kaplan

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

Following SOX, financial restatements increased dramatically. Prior research suggests that how investors respond to restatements, particularly those involving fraud, may mitigate or exacerbate damage suffered. We extend both accounting and management research by examining the joint effects of pre-restatement managerial reputation and the announcement of managerial corrective actions in response to a restatement on nonprofessional investors’ judgments. We find that pre-restatement managerial reputation and the announcement of managerial corrective actions jointly influence investors’ managerial fraud prevention assessments, which mediate their trust in management. These trust perceptions in turn affect investors’ investment and CEO retention judgments. Our results have implications for firms that are concerned with lessening the negative consequences associated with issuing a restatement.

Original languageEnglish (US)
Pages (from-to)1-16
Number of pages16
JournalJournal of Business Ethics
DOIs
Publication statusAccepted/In press - Mar 27 2018

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Keywords

  • Corrective action
  • Fraud prevention
  • Nonprofessional investors
  • Reputation
  • Restatement
  • Trust

ASJC Scopus subject areas

  • Business and International Management
  • Business, Management and Accounting(all)
  • Arts and Humanities (miscellaneous)
  • Economics and Econometrics
  • Law

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