The Contagion Effects of Accounting Restatements
49 Pages Posted: 15 Sep 2004
Date Written: January 2007
Abstract
We predict and find that accounting restatements that adversely affect shareholder wealth at the restating firm also induce share price declines among non-restating firms in the same industry. Peer firms with high industry-adjusted accruals experience a more pronounced share price decline than do low accrual firms. This accounting contagion effect is concentrated among revenue restatements by relatively large firms in the industry. We also find that investors impose a larger penalty on the stock prices of peer firms with high earnings and high accruals when peer and restating firms use the same external auditor. Our results are consistent with the notion that some accounting restatements cause investors to reassess the financial statement information previously released by non-restating firms.
Keywords: Accounting Quality, Contagion, Earnings Quality, Information Transfer
JEL Classification: G34, D80, G12, M41, M43
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Christine Botosan and Marlene Plumlee
-
By Christine Botosan and Marlene Plumlee
-
By Paul M. Healy and Krishna Palepu
-
Information and the Cost of Capital
By Maureen O'hara and David Easley
-
Toward an Implied Cost of Capital
By William R. Gebhardt, Charles M.c. Lee, ...
-
Toward an Ex Ante Cost-of-Capital
By William R. Gebhardt, Charles M.c. Lee, ...
-
The World Price of Insider Trading
By Utpal Bhattacharya and Hazem Daouk
-
The Market Pricing of Earnings Quality
By Jennifer Francis, Ryan Lafond, ...