Accounting Restatements and Information Risk
Todd D. Kravet
University of Texas at Dallas - School of Management
Terry J. Shevlin
University of California-Irvine
April 22, 2009
Review of Accounting Studies, Forthcoming
We examine the association between accounting restatements and the pricing of information risk. Using the Fama and French three-factor model augmented with an information risk factor we find a significant increase in the factor loadings on the information risk factor for restatement firms after a restatement announcement. We find that the increase is related to the discretionary component of information risk and associated with the short-window price reaction to restatements. We study several potential determinants of the change in information risk pricing and find evidence consistent with the restatement reason, restatement initiator and number of times a firm restates affecting the change in the pricing of information risk. We also find an increase, of smaller magnitude, in the pricing of information risk for non-restatement firms in the same industries as the restatement firms consistent with an information transfer effect.
Number of Pages in PDF File: 50
Keywords: restatements, information risk, earnings quality, cost of capital
JEL Classification: M41, G12Accepted Paper Series
Date posted: November 9, 2006 ; Last revised: March 4, 2010
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