Corporate Governance and Accounting Scandals

This paper empirically examines whether certain corporate governance mechanisms are related to the probability of a company restating its earnings. We examine a sample of 159 U.S. public companies that restated earnings and an industry-size matched sample of control firms. We have assembled a novel, hand-collected data set that measures the corporate governance characteristics of these 318 firms. We find that several key governance characteristics are unrelated to the probability of a company restating earnings. These include the independence of boards and audit committees and the provision of nonaudit services by outside auditors. We find that the probability of restatement is lower in companies whose boards…