The Ramifications of Restatements

Outside board members fear the legal and financial consequences they may face as a result of financial reporting failures. However, recent research suggests that outside directors of companies issuing earnings restatements are more likely to suffer a blow to their reputations and employability. When companies restate earnings, outside directors tend to lose board positions with both the restating companies and other companies. The losses are more severe for audit committee members and when the restatements are severe.

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