Situational and organizational influences on transparency following financial restatements

AbstractThis study explores the influence of situational and organizational factors on transparency regarding financial restatements. It is predicted that situational factors related to the severity of a restatement will influence transparency about the event and that an organization’s stakeholder orientation will moderate the relationship between the magnitude of the restatement and transparency. Consistent with predictions, results show a generally positive relationship between the severity of the restatement and transparency in the restatement announcement but also show that firm characteristics such as size, profitability, and stakeholder orientation can alter this relationship. Although transparency following restatements is generally viewed as desirable, we find that among smaller firms transparency is negatively related to the severity of the restatement, and we theorize that this is due to risk aversion triggered by fears that the firm may fail as a result of the restatement. We also find that com...