Corporate Governance and Accounting Restatements

The purpose of this research is to examine the relationship between thecorporate governance characteristics and accounting restatements due to rapid growth of restatements in the world as well as the Iranian capital market. Researchers believe that restatement is a sign of low quality of financial reporting by the companies. For doing so, similar to prior studies and by consideration of the Iranian context a set of different corporate governance characteristics including power of CEO, CEO changes, block holders, largest shareholder, auditor type, auditor industry specialization,auditor changes, and finally capital structure are considered. In addition, to control the possible effects of other factors, which could potentially affect firm's restatement decisions, 10 new variables were added to the model. These control variables include return on assets, sales growth, operating cash flow, liquidity ratio, prior year performance, equity financing, debt financing, firm size, year, and industry type. The final research sample includes 999 observations of the Tehran Stock Exchange (TSE) listed companies for the period 2004-2009. The results indicate that CEO changes, auditor changes, auditor industry specialization, auditor size and largest shareholder as well as some financial characteristics such as operating cash flows ratio, liquidity ratio, and firm size are associated with the restatements of the accounting income. Therefore, the findings support the hypothesis that corporate governance mechanisms can improve the quality of financial reporting.