Long-run equity performance of firms that restate financial statements
ISSN: 0307-4358
Article publication date: 18 November 2019
Issue publication date: 9 January 2020
Abstract
Purpose
The authors investigate how the stock market reacts to financial restatements using the restatements data from the United States Government Accountability Office (GAO-06-678). In particular, the purpose of this paper is to examine the long-run equity performance of the restating firms, for holding periods of one to five years after the announcements of restatements.
Design/methodology/approach
This paper measures the long-run stock performance of restating firms with the buy-and-hold abnormal returns and time-series regression analyses based on Fama–French’s (1993) three-factor model and Carhart’s (1997) four-factor model.
Findings
The authors find that restating firms significantly underperform in the long run compared with their peers matched by industry, size and book-to-market. Restating firms’ underperformance is confirmed with time-series regression analyses based on Fama–French’s (1993) three-factor model and Carhart’s (1997) four-factor model. Further, the authors find the negative long-run abnormal performance of restating firms is primarily driven by large firms. The authors also report that self-prompted restatements and improper revenue accounting-triggered restatements result in worse long-run abnormal performance.
Originality/value
This paper is the first paper that thoroughly investigates the long-run stock returns of the firms that restate financial statements by fully considering the size effect.
Keywords
Citation
Moon, G., Lee, H. and Waggle, D. (2020), "Long-run equity performance of firms that restate financial statements", Managerial Finance, Vol. 46 No. 1, pp. 92-108. https://doi.org/10.1108/MF-05-2019-0247
Publisher
:Emerald Publishing Limited
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