AbstractThis study investigates the impact of media coverage on the incidence of financial
restatements by testing two competing hypotheses: the media monitoring hypothesis
and the media pressure hypothesis. The media monitoring hypothesis suggests a negative
relationship between media coverage and financial restatements, as media acts as an
external monitor, improving the quality of financial reporting. The media pressure
hypothesis posits a positive relationship, as media coverage can induce short-term
performance pressure on managers, leading to opportunistic earnings manipulation and
restatements. Analyzing a sample of Taiwan-listed companies from 2000 to 2021, our
overall findings support for the media pressure hypothesis, indicating that higher
media coverage increases the likelihood of financial restatements. Further results
suggest that the positive impact of media coverage on restatements is mitigated by
the presence of foreign institutional investors acting as substitution governance
monitors. We also show that the positive impact of media coverage on restatements
is more evident among firms with high coverage of directors’ and officers’ liability
insurance, serving as a complementary mechanism to amplify the media-driven short-term
performance pressure on managers. This study expands our knowledge of financial restatements
and underscores the significance of acknowledging the role of media in short-term
market pressure and the quality of financial reporting.JEL classification numbers:
G14, G34, L82, M41.Keywords: Media Coverage, Financial Restatements, Corporate Governance,
Short-term Pressure.
