Securitizations and accounting restatements

Wang, Haiping and Zhang, Jing,(2018), Securitizations and accounting restatements. , Asian Review of Accounting, UNSPECIFIED

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Purpose – The purpose of this paper is to establish a direct link between securitizations and accrual-based earnings management by investigating whether financial statements in the periods of securitizations are more likely to be restated at a later time. In addition, this study examines whether the association between securitization and accounting restatements is more pronounced in the pre-financial crisis period and for banks with less independent or industry-specialized auditors. Design/methodology/approach – This study covers a sample of bank holding companies with restatement information between 2001 and 2012. Using the incidence of material accounting restatements as a proxy for accrual earnings management, this study investigates whether securitizations are likely used as a tool for accrual earnings management. A logistic model is applied with standard errors clustered at the firm-year level. Various robustness tests are conducted to rule out the possibilities that the results are driven by unintentional reporting errors or endogeneity of the securitization decisions. Findings – The empirical results reveal a positive and significant association between banks’ securitization activities and the likelihood of having accounting restatements. Moreover, this positive association is more pronounced in the pre-financial crisis period and for banks with less independent or industry-specialized auditors. Research limitations/implications – The findings suggest that managers take advantage of discretions on accounting rules for securitizations to manage earnings. This evidence provides multi-dimension implications for standard setters and practitioners, as well as investors. Originality/value – This is one of the very first papers to document evidence that accrual earnings management is involved in securitization.
Keywords : Banks, Financial crisis, Accounting restatements, Auditor industry specialization, Auditor independence, Securitizations, UNSPECIFIED
Journal or Publication Title: Asian Review of Accounting
Volume: 26
Number: 4
Item Type: Article
Subjects: Akuntansi
Depositing User: Eriana Ringgowati
Date Deposited: 16 Dec 2019 07:03
Last Modified: 16 Dec 2019 07:03

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