Media coverage and financial restatements: evidence from China

Abstract

Purpose

Drawing on the premise that the media play a vital corporate governance role, this paper aims to investigate the association between media coverage and financial report restatements.

Design/methodology/approach

Based on a sample of Chinese listed companies over the period 2011–2015, the authors use ordinary least squares regression as well as a number of additional tests. To mitigate the endogeneity issue, the authors use a two-stage Heckman test and a propensity score matching model.

Findings

The authors document a negative and significant association between media coverage and restatements, suggesting that firms with high media coverage engage less in financial restatements. The authors further explore the moderating effects of internal control quality and state ownership on the association between media coverage and restatements. Regression results reveal that the governance role of the media is more pronounced for state-owned enterprises than for private firms. However, no significant difference in the disciplining effect of media coverage is found for firms with high, versus low, internal control quality.

Originality/value

The role of the media in corporate governance and financial reporting quality has been well documented. In emerging economies, such a role has been overlooked. As a result, the purpose of this study is to fill that void. Furthermore, prior research ignores the impacts of state ownership and the internal control environment on the media's governance role.

Citation

Alkebsee, R.H. and Habib, A. (2021), "Media coverage and financial restatements: evidence from China", Asian Review of Accounting, Vol. 29 No. 4, pp. 505-524. https://doi.org/10.1108/ARA-05-2021-0092