This 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.