IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v96y2024ipas1057521924005386.html
   My bibliography  Save this article

Do firms incur financial restatements? A recognition study based on textual features of key audit matters reports

Author

Listed:
  • Huang, Xin
  • Huang, Hao
  • Yuan, Liang

Abstract

This article uses China's A-share nonfinancial listed company reports from 2017 to 2019 as the research sample and analyzes three textual features of key audit matters using machine learning to identify financial restatement behaviors. Results show that firms with a worse level of key audit matter readability, a negative tone, and a greater level of detail had a higher probability of financial restatement behaviors. From this, investors can infer whether firms have strong internal or external monitoring. These correlations reflect the importance of standardized information disclosures and appropriate regulatory programs to safeguard investors' rights and interests.

Suggested Citation

  • Huang, Xin & Huang, Hao & Yuan, Liang, 2024. "Do firms incur financial restatements? A recognition study based on textual features of key audit matters reports," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    • Handle: RePEc:eee:finana:v:96:y:2024:i:pa:s1057521924005386
    DOI: 10.1016/j.irfa.2024.103606
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521924005386
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2024.103606?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lo, Kin & Ramos, Felipe & Rogo, Rafael, 2017. "Earnings management and annual report readability," Journal of Accounting and Economics, Elsevier, vol. 63(1), pages 1-25.
    2. Baber, Wr & Kumar, Kr & Verghese, T, 1995. "Client Security Price Reactions To The Laventhol And Horwath Bankruptcy," Journal of Accounting Research, Wiley Blackwell, vol. 33(2), pages 385-395.
    3. Jere R. Francis & Paul N. Michas & Michael D. Yu, 2013. "Office Size of Big 4 Auditors and Client Restatements," Contemporary Accounting Research, John Wiley & Sons, vol. 30(4), pages 1626-1661, December.
    4. Li, Feng, 2008. "Annual report readability, current earnings, and earnings persistence," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 221-247, August.
    5. Price, S. McKay & Doran, James S. & Peterson, David R. & Bliss, Barbara A., 2012. "Earnings conference calls and stock returns: The incremental informativeness of textual tone," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 992-1011.
    6. Palmrose, Zoe-Vonna & Richardson, Vernon J. & Scholz, Susan, 2004. "Determinants of market reactions to restatement announcements," Journal of Accounting and Economics, Elsevier, vol. 37(1), pages 59-89, February.
    7. Tim Loughran & Bill Mcdonald, 2011. "When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks," Journal of Finance, American Finance Association, vol. 66(1), pages 35-65, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wanli Li & Tiantian Yan & Yue Li & Ziqiao Yan, 2023. "Earnings management and CSR report tone: Evidence from China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1883-1902, July.
    2. Oz, Seda, 2024. "The impact of terrorist attacks and mass shootings on earnings management," The British Accounting Review, Elsevier, vol. 56(3).
    3. Elshandidy, Tamer & Kamel, Hany, 2024. "Tone of narrative disclosures and earnings management: UK evidence," Advances in accounting, Elsevier, vol. 64(C).
    4. Kim, Jongkyum & Lim, Jee-Hae & Yoon, Kyunghee, 2022. "How do the content, format, and tone of Twitter-based corporate disclosure vary depending on earnings performance?," International Journal of Accounting Information Systems, Elsevier, vol. 47(C).
    5. Chen, Chen & Hanlon, Dean & Khedmati, Mehdi & Wake, James, 2023. "Annual report readability and equity mispricing," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(3).
    6. An, Suwei, 2023. "Essays on incentive contracts, M&As, and firm risk," Other publications TiSEM dd97d2f5-1c9d-47c5-ba62-f, Tilburg University, School of Economics and Management.
    7. Renato Camodeca & Alex Almici & Umberto Sagliaschi, 2018. "Sustainability Disclosure in Integrated Reporting: Does It Matter to Investors? A Cheap Talk Approach," Sustainability, MDPI, vol. 10(12), pages 1-34, November.
    8. Shuangyan Li & Guangrui Wang & Yongli Luo, 2022. "Tone of language, financial disclosure, and earnings management: a textual analysis of form 20-F," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-24, December.
    9. Hills, Robert & Kubic, Matthew & Mayew, William J., 2021. "State sponsors of terrorism disclosure and SEC financial reporting oversight," Journal of Accounting and Economics, Elsevier, vol. 72(1).
    10. Bhagwat, Vineet & Shirley, Sara E. & Stark, Jeffrey R., 2024. "Task-oriented speech and information processing," Journal of Banking & Finance, Elsevier, vol. 161(C).
    11. Konstantin Ignatov & Markus Rudolf, 2023. "Sentimental Sustainability: Does What Companies Say Tell More Than What Companies Do?," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 32(4), pages 221-252, November.
    12. Allee, Kristian D. & Do, Chuong & Sterin, Mikhail, 2021. "Product market competition, disclosure framing, and casting in earnings conference calls," Journal of Accounting and Economics, Elsevier, vol. 72(1).
    13. Akhilesh Bajaj & Lori N. K. Leonard & Li Sun & Zhenze Xing, 2023. "Corporate social responsibility and annual report reading difficulty," Review of Quantitative Finance and Accounting, Springer, vol. 60(4), pages 1393-1428, May.
    14. Soliman, Marwa & Ben-Amar, Walid, 2022. "Corporate social responsibility orientation and textual features of financial disclosures," International Review of Financial Analysis, Elsevier, vol. 84(C).
    15. Kristian D. Allee & Matthew D. Deangelis, 2015. "The Structure of Voluntary Disclosure Narratives: Evidence from Tone Dispersion," Journal of Accounting Research, Wiley Blackwell, vol. 53(2), pages 241-274, May.
    16. Borochin, Paul A. & Cicon, James E. & DeLisle, R. Jared & Price, S. McKay, 2018. "The effects of conference call tones on market perceptions of value uncertainty," Journal of Financial Markets, Elsevier, vol. 40(C), pages 75-91.
    17. Zeckhauser, Richard, 2017. "Straight Talkers and Vague Talkers: The Effects of Managerial Style in Earnings Conference Calls," Working Paper Series rwp17-017, Harvard University, John F. Kennedy School of Government.
    18. Frankel, Richard & Jennings, Jared & Lee, Joshua, 2016. "Using unstructured and qualitative disclosures to explain accruals," Journal of Accounting and Economics, Elsevier, vol. 62(2), pages 209-227.
    19. Jiang, Fuwei & Lee, Joshua & Martin, Xiumin & Zhou, Guofu, 2019. "Manager sentiment and stock returns," Journal of Financial Economics, Elsevier, vol. 132(1), pages 126-149.
    20. Bakarich, Kathleen M. & Hossain, Mahmud & Hossain, Mahmud & Weintrop, Joseph, 2019. "Different time, different tone: Company life cycle," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(1), pages 69-86.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:96:y:2024:i:pa:s1057521924005386. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.