Title
Cooking the books : recipes and costs of falsified financial statements in China
Document Type
Journal article
Source Publication
Journal of Corporate Finance
Publication Date
4-1-2011
Volume
17
Issue
2
First Page
371
Last Page
390
Publisher
Elsevier BV
Keywords
Fraud, Financial restatements, Regional development, Corporate governance, Causes and consequences of restatements
Abstract
We examine the causes and consequences of falsified financial statements in China. Using bivariate probit regression analysis, we find that firms with high debt and that plan to make equity issues are more likely to manipulate their earnings and thus have to restate their financial reports in subsequent years. We also find that corporate governance structures have an effect on the occurrence and detection of financial fraud. There are significant negative consequences to fraudulent financial statements. Restating firms suffer negative abnormal stock returns, increases in their cost of capital, wider bid-ask spreads, a greater frequency of modified audit opinions, and greater CEO turnover. We also find that firms located in highly developed regions suffer more severe consequences when they manipulate their accounts.
DOI
10.1016/j.jcorpfin.2010.09.002
Print ISSN
09291199
E-ISSN
18726313
Publisher Statement
Copyright © 2010 Elsevier B.V.
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Firth, M., Rui, O. M., & Wu, W. (2011). Cooking the books: Recipes and costs of falsified financial statements in China. Journal of Corporate Finance, 17(2), 371-390. doi: 10.1016/j.jcorpfin.2010.09.002
