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A Study on the Market Reactions and Intra-industry Information Transfer Effects of Financial Restatement

Author: LiuXingCui
Tutor: LiShiXin
School: Chongqing University
Course: Accounting
Keywords: Financial Restatement Market Reaction Intra-industry Information Transfer Effects Competitive Effect Contagion Effect
CLC: F224
Type: Master's thesis
Year: 2011
Downloads: 214
Quote: 1
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Abstract


Financial restatement is a remedial action that restates the errors or misleading information of historical financial statements. Listed companies correct errors of previous statement by restating the financial statements which were published previously. Financial statement is an important way for investors and other external stakeholders to understand the financial position and operating results of listed company, and also an important basis for investors to make investment decisions. Therefore, it is of important significance to ensure that accounting information is true and fair. However, the phenomenon of financial restatements became increasingly frequent and common in recent years and caused wide attention of related parties.The paper chooses the listed companies which release the temporary announcements of accounting errors from the year 2007 to 2009 as the research samples. Using the methods of event study and multiple regressions analyzed the market reactions and industry transfer effects of financial restatements. And intend to test the following questions:①Whether the market has reaction for the financial restatements and various types of announcements have different reactions?②Whether the financial restatements have the industry transfer effects?③What are the factors affecting the industry transfer effects?This research confirmed that:①There is a significant negative influence on the overall performance of stock prices before and after the announcement, and investors regarded the news as "bad" event, the value of company have also been impacted negatively.②The reactions of various types of restatement announcements are different. The reactions of restatement that induced by income problems are greater than that induced by other problems. When the announcements refer to a wider scope and core-accounts, the sponsor are external regulatory authority and the restatements lead to earnings decrease, the reactions are more significant.③The financial restatements have industry transfer effects. Not only the announced company’s stock price fell, but the company in the industry which did not occur the restatement also showed the same change, that is, the industry transfer effects is the contagion effect.④When the announcements is the core restatement or the CAR of announced company is larger, the contagion effect performs stronger; when the companies are larger or the chairman of the board changed, the greater contagion it is suffered; When the size of the board is larger, the smaller contagion it is suffered; We find that ownership concentration and the independent directors have no influence on the contagion effect.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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