Fewer restrictions on shareholder participation correlate with a relatively low incidence of accounting restatements, according to a new study.

The study, entitled “External Corporate Governance and Misreporting,” analyzed external provisions that limit direct shareholder participation in the governance process. The paper was recently accepted for publication in the journal Contemporary Accounting Research, and was written by Lihong Liang of Syracuse University’s Martin J. Whitman School of Management, William Barber of Georgetown University, Sok-Hyon Kang of George Washington University, and Zinan Zhu of the National University of Singapore.

“We investigated associations between misreporting and external governance characteristics, which dictate the ability of shareholders to participate directly in the corporate governance process,” Liang said in a statement. “Accounting irregularities are significant events, as sample firms experience (on average) a 6.7 percent loss of shareholder value around the time of the subsequent restatement disclosure.”

Liang and her co-authors defined external governance as those statutory and corporate charter provisions that discourage shareholders from participating in the decision-making and governance processes. In the research, firms whose provisions restricted shareholder intervention were presumed to have weak external governance, and firms with relatively few such provisions were presumed to have strong external governance.

“We discovered that misreporting is more likely for firms characterized by weak external governance than firms where external governance is strong,” said Liang. “What’s more, our results support the notion that shareholder participation discourages accounting decisions or practices that could result in misreporting.”

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