Causequences of Financial Restatements for Directors in Indonesia

Butar Butar, Sansaloni (2017) Causequences of Financial Restatements for Directors in Indonesia. In: The 3rd SBE International Conference on Business and Economy 2017, University of San Carlos, Cebu City, Cebu, Philippines.. (Unpublished)

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High quality accounting information are indispensable for investors, managers and other interested parties to make reasonable decisions. Therefore, accounting number reflected in financial statements are to be transparent, complete, and fair. When a company restates its financial statements, the figures presented in the financial statements no longer reflect the firm economic reality and may lead to serious economic consequences. Financial restatements issues have not received much attention in Indonesia. So far, problems related to financial reporting are more to do with manipulation of financial statements. Therefore, the objective of this study is to examine the consequences of financial restatements in Indonesia. The study consists of two parts. The first part is to assess the impact of corporate governance on restatements. Previous studies assumed that financial restatements can be reduced by establishing good corporate governance. However, empirical studies relating financial restatements and the characteristics of boards or the audit committee found inconsistent results. Thus the effect of corporate governance on financial restatement is still empirical questions in Indonesia. In this study, restating firms are identified by observing annual report of samples firms from 2010 to 2014. There are 36 companies that restates their financial statements during the sample period. As control samples, 34 non-restating firms are also included to test the hypothesis. Using logistic regression, I find that audit committee’ s financial expertise is negatively related to financial restatements but no significant results for board of commissioners. The second part of this study to examine the impact of financial restatement on management turnover. As largely discussed in literature, managers have an important role in financial reporting process and are fully responsible for the quality of financial statements. But the occurrence of restatements indicate that the prior financial statements are not based on generally accepted accounting principles and may threaten the legitimacy of organizations. Therefore, this study predicts that corporate managers who do restatement are more likely to lose his job. In this study, management turnover refers to the likelihood of chief director (president director) and director of firms lose their jobs within 24 months after financial restatement. More specifically, this study compares manager turnover between restating firms and non-restating firms. Using logistic regression, the results show that earnings restatements cause managers to lose their jobs. As much as 79% of restating companies managers losing their jobs compared to only 38% of managers losing their jobs in non-restating firms.

Item Type: Conference or Workshop Item (Paper)
Subjects: 300 Social Sciences > 330 Economics > Financial Economics > Stock Exchange
Depositing User: Mr Sansaloni .
Date Deposited: 23 Oct 2023 02:16
Last Modified: 23 Oct 2023 02:16

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