An empirical investigation of earnings restatements by Australian firms

To purchase or authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1467-629X.2006.00196.x Byline: Kamran Ahmed (a), John Goodwin (b) Keywords: Earnings restatements; Value relevance; Firm characteristics Abstract: Abstract From 1970 to 2003, we document earnings restatements for the top 500 Australian firms, examine the characteristics of restating firms, and test whether restatements are value relevant. Of the 195 earnings restatements, 49 per cent decrease prior-period earnings (negative restatements). Negative restatements are relatively larger than positive restatements. We identify three reasons for earnings restatements; namely, accounting policy changes, revision of estimates, and errors and unknown, and they comprise 49, 40 and 11 per cent of the sample, respectively. Restatement firms have higher growth opportunities and are smaller than non-restating firms from the same industry. Restatements are generally negatively associated with market and non-market value. Author Affiliation: (a)School of Business, La Trobe University, Bundoora, 3086, Australia (b)School of Accounting and Law, RMIT University, Melbourne, 3000, Australia Article History: Received 3 August 2005; accepted 15 March 2006 by Gary Monroe (Deputy Editor). doi: 10.1111/j.1467-629x.2006.00196.x