You are here

Differential Investors’ Response to Restatement Announcements: An Empirical Investigation

Journal Name:

Publication Year:

Abstract (2. Language): 
When firms announce a restatement of their financial reports, they inform investors that their prior announcements were faulty. Not only do companies lose credibility at times such as this but also their securities are revalued as investors respond to the substance of the announcement. We investigate investor size to understand how large and small investors differ in their responses to restatement announcements. Our results indicate that large investors seemingly anticipate the announcement; their holdings decrease before restatement announcements; consequently large investors trading after announcements is less pronounced than for smaller investors. The response of small investors depends on who has prompted the restatement: the company itself, FASB or the SEC and not on the reason for the restatement such as problems with revenue recognition, restructuring or cost/expense. Large investor trading volume is affected by both the source of the restatement and the reason for it. Large investors seem to anticipate potential problems, and sell securities before restatement announcements
47-81

REFERENCES

References: 

Anderson, K.L. and Yohn, T.L.. 2002. “The effect of 10-K restatements on firm value, information
asymmetries, and investors’ reliance on earnings”, Available at
http://ssrn.com/abstract=332380.
Asthana, S. , Balsam, S . and Sankaraguruswamy, S.2004. “ Differential Response of Small versus
Large Investors to 10-K Filings on EDGAR”, The Accounting Review , 79: 571- 589
Ball, R. and Brown, P. 1968. “An empirical evaluation of accounting numbers”. Journal of
Accounting Research, 6: 159 - 178.
Beaver, W. H. 1968. “The information content of annual earnings announcements”. Journal of
Accounting Research 6: 67- 92.
Bens, D. A. and Monahan, S. J.2004. “ Disclosure quality and excess value of diversifi cation”,
Journal of Accounting Research , 42: 691- 730.
Bhattacharya, N.2001. “ Investors’ trade size and trading responses around earnings
announcements: An empirical investigation”, The Accounting Review , 76:221- 244.
Bushee, B. 1998. “ The influence of institutional investors on myopic R&D investment
behavior.” The Accounting Review , 73:305- 333.
Sebahattin Demirkan and Harlan Platt
80
Cready, W. M. 1988. “ Information value and investor wealth: The case of earnings
announcements”, Jour nal of Accounting Research, 26: 1- 27.
Cready, W.M. and Mynatt, P. G. 1991. “ The Information content of Annual reports: A price and
trading response analysis”, The Accounting Review , 66: 291-312
DeFond, M. and Park, C. 2001. “ The reversal of abnormal accruals and the market valuation of
earnings surprises”. The Accounting Review , 76: 375 - 404.
Demski, J. S. and Feltham, G. A. 1994. “ Market response to financial reports”, Journal of
Account ing and Economics, 17: 3- 40.
Desai, H., Krishnamurthy, S. and Venkata raman, K. 2006. “ Do short sellers target firms with
poor earning quality? Evidence from earnings restatement”, Review of Accounting Stu dies ,
11: 71- 90.
Dhaliwal, D., Li, O. Z. and Xie, H. 2010. “ Institutional investors, financial health, and equity
valuation”, Asia- Pacific Journal of Accounting and Economics, 17: 151- 173.
Easley, D. and O’Hara, M. 1987. “Price, trade size, and information in securities markets”,
Jou r nal of Financial Economics, 19: 69- 60.
El- Gazzar, S. 1998. “ Predisclosure information and institutional ownership: A cross- sectional
examination of market revaluations during earnings announcement periods”. The
Accounting Review , 73: 119- 29.
GAO- 03- 138. 2002. “ Financial Statement Restatements: Trends, market impacts, regulatory
responses, and remaining challenges”, United States General Accounting Of fice.
Hakansson, N. H. 1977. “ Interim disclosure and public forecast: an economic analysis and a
framework for choice ”, The Accounting Review , 52: 396 - 416.
Hasbrouck, J. 1988. “Trades Quotes, inventories and information”, Journal of Financial
Ec onomics , 22: 229- 252.
Desai, H., Hogan, C. E. and Wilkins, M. S . 2006. “ The Reputational Penalty for Aggressive
Accounting: Earnings Restatements and Management Turnover”, The Ac counting Review ,
81: 83 - 112.
Hribar, P., Jenkins, N. 2005. “ The effect of accounting restatements on earnings revi sions and
the estimated cost of capital”. Review of Accounting Studies , 9:337- 356.
Hribar, P., Jenkins, N. 2004. “The effect of accounting restatements on earnings revi sions and
the estimated cost of capital”. Review of Accounting Studies , 9: 337- 356.
European Journal of Economic and Political Studies
81
Kim, O., and Verrecchia, R 1991. “ Trading Volume and Price Reactions to Public
Announcements”, Journal of Accounting Research, 29: 302- 321.
Jones, J. 1991. “Earnings management during import relief investigations” Journal of A c counting
Research , 29: 93- 228.
Lee, C. 1992. “ Earning News and small Traders: An intra-day analysis”, Journal of A ccounting
and Economics , 15: 265- 302.
Lee, C. and Radhakrisna, B. 2000. “ Inferring Investor Behavior: Evidence from TORQ data”.
Jou r nal of Financial Markets , 3:83- 111.
Lang, M. and Lundholm, R. 1993 . “ Cross- sectional determinants of analyst ratings of corporate
disclosures”, Journal of Accounting Research , 31: 246 - 271.
Lee, C.M.C., Mucklow, B. and Ready, M. J. 1993 “ Spreads, Depths, and the Impact of Earnings
Information: An Intraday Analysis”, Review of Financial Studies , 2: 345 - 374.
Lee, C.M. C., and Ready, M. J., 1991. “ Inferring Trade Directions from Intraday Data”, Journal of
F i nance , 46: 733- 746.
Odders-White, E. R. 2000. “On the Occurrence and Consequences of Inaccurate Trade
Classification”, Journal of Financial Markets , 3: 259- 286.
Ohlson, J.A., 1975. “ The Complete ordering information alternatives for a class of portfolio
selection Models”, Journal of Accounting Research , 13: 267 - 82.
Palmrose, Z-V, Richardson, V. J. and Scholz, S. 2004. " Determinants of Market Reactions to
Restatement Announcements”. Journal of Accounting and Economics , 37: 59- 89.
Platt, H. 2006. “Revisiting the Reversal of Large Stock-Price Declines”, Journal of Alte r native
Investment , 9: 48 - 63.
Walther, B. 1997. “Investor sophistication and market earnings expectations”. Journal of
Accounting Research , 35:157- 79.
Wilson, R. 1975. “Informational Economics of Scale”, Bell Journal of Economics, 6: 184- 95.
Verrechia, R. E. 1981. “On the relationship between volume and consensus of investors:
Implications for interpreting tests of information content”. Journal of Accoun t ing Research ,
19: 271 - 83

Thank you for copying data from http://www.arastirmax.com