ACCOUNTING RESTATEMENTS, QUALITY OF ACCOUNTING INFORMATION, COST OF DEBT AND STOCK RETURNS: A COMPARATIVE STUDY BETWEEN BRAZIL AND THE USA

Abstract

Objective: This study aimed to examine the relationship between financial restatements and the qualitative characteristics of the information disclosed, namely conservatism, persistence, relevance and timeliness, together with the relationship between the cost of raising funds with banks and investors, by observing the cost of debt and stock returns.

Methods: The study considered quarterly data from 2010 to 2018, comparing Brazilian and US companies, using regression analysis of panel data.

Results: The study results showed that the companies that need to issue financial restatements present accounting information of low quality. This scenario is evident for both Brazil and the US, whose results indicated non-conservative, non-persistent, non-relevant. As for timeliness, this quality has not worsened in Brazil in the context of restatements because it is not present in financial statements even without the context of restatements. About the USA, banks and investors do not seem to react to restatements, but, in Brazil, companies in need of bank financing should consider that a restatement is related to an increase in the cost of debt. A greater number of restatements was also observed for Brazilian companies, which may be related to a lack of enforcement.

Contribution: The study contributes to the literature on the impact of financial restatements, and signals to investors, banks, and analysts the existence of a decrease in the quality of information, a factor that can be considered in their business valuation models.