Corporate Investments: Learning from Restatements
53 Pages Posted: 29 Mar 2008 Last revised: 6 Nov 2008
Date Written: October 15, 2008
This study analyzes the information conveyed by the restatements of financial reports. We argue that restatements contain news about the investment projects of the restating firms' competitors. This news causes competitors to revise their beliefs about the projects' value, and to modify their subsequent investment decisions. Accordingly, we hypothesize that changes in competitors' investments after restatement announcements are related to news in the restatements. Consistent with our prediction, we find that changes in competitors' investments following restatement announcements are significantly related to various proxies for news in the restatements, such as competitors' and restating firms' abnormal returns at the restatement announcements. We conclude that restatements convey information about the investment projects of restating firms' competitors.
Keywords: restatements, investment efficiency
JEL Classification: G31
Suggested Citation: Suggested Citation