| Summary: | 碩士 === 中國文化大學 === 國際貿易學系 === 101 === Financial fraud (e.g. restatement) has a material adverse effect on firms’ reputation and image, and then suffers a negative impact on investors’ perception of the financial reporting quality of a firm. Given the role of the board in monitoring financial reporting, accounting restatements reflect a lower quality in the monitoring role of the directors. Our study focuses on examining whether a contagion firm that has a common director with a restating firm suffers market price decline within a short window period sur-rounding the restatement announcement of the restating firm; that is, whether there is an information transfer effect of restatements through common directorships.
Besides, we propose other additional hypotheses. We argue that the negative stock price reactions at the contagion firms when the corresponding restating firms announce restatements are more pronounced if the age, tenure and educational attainment of the common director at the contagion firms are lower. We find that contagion firms experi-ence a mean size-adjusted abnormal return of 95 percent over a five-day window sur-rounding the restatement dates of the restating firms, and this negative mean abnormal return is statistically significant.
Further, in the multivariate analyses, we find that the abnormal returns are lower if the common director of the contagion firm (1) is older, (2)has longer tenure, or (3) has longer educational attainment, but the results are just partially statistical significant.
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