Determinants of market reactions to restatement announcements

Determinants of market reactions to restatement announcements We examine the market reaction to a sample of 403 restatements announced from 1995 to 1999. We document an average abnormal return of about −9 percent over a 2-day announcement window. We find that more negative returns are associated with restatements involving fraud, affecting more accounts, decreasing reported income and attributed to auditors or management (but not the Securities and Exchange Commission). There appears to be an additional penalty for announcements that do not quantify the restatement. Finally, we provide evidence on the relation between restatement announcements and analyst earnings forecast dispersion, bid–ask spreads and subsequent revisions in analyst earnings forecasts. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Determinants of market reactions to restatement announcements

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Publisher
Elsevier
Copyright
Copyright © 2003 Elsevier B.V.
ISSN
0165-4101
D.O.I.
10.1016/j.jacceco.2003.06.003
Publisher site
See Article on Publisher Site

Abstract

We examine the market reaction to a sample of 403 restatements announced from 1995 to 1999. We document an average abnormal return of about −9 percent over a 2-day announcement window. We find that more negative returns are associated with restatements involving fraud, affecting more accounts, decreasing reported income and attributed to auditors or management (but not the Securities and Exchange Commission). There appears to be an additional penalty for announcements that do not quantify the restatement. Finally, we provide evidence on the relation between restatement announcements and analyst earnings forecast dispersion, bid–ask spreads and subsequent revisions in analyst earnings forecasts.

Journal

Journal of Accounting and EconomicsElsevier

Published: Feb 1, 2004

References

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