The Effect of Board Composition and CEO's Overconfidence in Earnings on Restatement of Financial Statements

Abstract

The aim of the present study is to explore the effect of corporate governance mechanisms and CEO's overconfidence in earnings on restatement of financial statements of companies listed on Tehran Stock Exchange. Research population of this study includes all companies listed on Tehran Stock Exchange and sample size is obtained equal to 123 companies by using screening method. In this study, CEO's overconfidence in earnings, the number of board’s members, percentage of non-bounded members of board and CEO duality are considered as independent variables in order to study their effect on restatement of financial statements. In this study, panel data with fixed effect is used and results obtained from analyzing 123 companies during the time period of 2008 - 2012 by using multiple variable regression test at 95% confidence level indicated that there is a direct relationship between CEO duality and CEO's overconfidence in earnings with restatement of financial statements. It was also indicated that there is a reverse relationship between percentages of non-bounded board members with the extent to which financial statements are restated. On the other hand, results indicated that there is no significant relationship between board size and restatement of financial statements.