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- Title
How Do Investors Respond to Restatements? Repairing Trust Through Managerial Reputation and the Announcement of Corrective Actions.
- Authors
Cianci, Anna M.; Clor-Proell, Shana M.; Kaplan, Steven E.
- 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.
- Subjects
LABOR discipline; MANAGEMENT ethics; LEADERSHIP ethics; REPUTATION; BUSINESS ethics
- Publication
Journal of Business Ethics, 2019, Vol 158, Issue 2, p297
- ISSN
0167-4544
- Publication type
Article
- DOI
10.1007/s10551-018-3844-z