The characteristics of firms subject to adverse rulings by the Financial Reporting Review Panel

• Published in: Accounting and business research Vol. 31; no. 4; pp. 291 - 311
• Main Authors: Peasnell, K. V., Pope, P. F., Young, S.
• Format: Journal Article
• Language: English
• Published: Abingdon Taylor & Francis Group 01.10.2001; Taylor & Francis Ltd
• Subjects: Accounting; Accounting standards; Business management; Business studies; Corporate governance; Correlation analysis; Financial performance; Financial reporting; Stakeholder; Statistical analysis; Studies; United Kingdom; United Kingdom > UK
• ISSN: 0001-4788; 2159-4260
• DOI: 10.1080/00014788.2001.9729621

This study presents evidence on the characteristics of firms judged by the Financial Reporting Review Panel (FRRP) as having published defective financial statements. Relative to a pairwise-matched control sample, FRRP firms are associated with weak performance in the defect year. In contrast, their performance in the post-defect period is indistinguishable from that of the control sample, suggesting that rather than being perennial underachieves, FRRP firms are average performers suffering temporary performance difficulties. FRRP firms are also less likely to have a Big Five auditor. Weaker evidence is also presented that FRRP firms are less likely to have an audit committee and a high proportion of outside directors. In contrast, their remaining governance characteristics are largely indistinguishable from those of the control sample. Moreover, there is no evidence that public censure by the FRRP leads to a higher incidence of executive turnover in subsequent years.