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Corporate Investments: Learning from Restatements

Corporate Investments: Learning from Restatements ABSTRACT This study analyzes the information conveyed by the restatements of financial reports. We argue that restatements contain news about the investment projects of the restating firms' competitors. This news causes competitors to revise their beliefs about the projects' value, and to modify their subsequent investment decisions. Accordingly, we hypothesize that changes in competitors' investments after restatement announcements are related to news in the restatements. Consistent with our prediction, we find that changes in competitors' investments following restatement announcements are significantly related to various proxies for news in the restatements, such as competitors' and restating firms' abnormal returns at the restatement announcements. We conclude that restatements convey information about the investment projects of restating firms' competitors. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting Research Wiley

Corporate Investments: Learning from Restatements

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References (135)

Publisher
Wiley
Copyright
©, University of Chicago on behalf of the Institute of Professional Accounting, 2009
ISSN
0021-8456
eISSN
1475-679X
DOI
10.1111/j.1475-679X.2009.00332.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This study analyzes the information conveyed by the restatements of financial reports. We argue that restatements contain news about the investment projects of the restating firms' competitors. This news causes competitors to revise their beliefs about the projects' value, and to modify their subsequent investment decisions. Accordingly, we hypothesize that changes in competitors' investments after restatement announcements are related to news in the restatements. Consistent with our prediction, we find that changes in competitors' investments following restatement announcements are significantly related to various proxies for news in the restatements, such as competitors' and restating firms' abnormal returns at the restatement announcements. We conclude that restatements convey information about the investment projects of restating firms' competitors.

Journal

Journal of Accounting ResearchWiley

Published: Jun 1, 2009

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