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Corporate Investments: Learning from Restatements

53 Pages Posted: 29 Mar 2008 Last revised: 6 Nov 2008

Art Durnev

University of Iowa - Henry B. Tippie College of Business

Claudine Mangen

Concordia University, Montreal - John Molson School of Business

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Date Written: October 15, 2008

Abstract

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

Durnev, Art and Mangen, Claudine, Corporate Investments: Learning from Restatements (October 15, 2008). Available at SSRN: https://ssrn.com/abstract=1091475 or http://dx.doi.org/10.2139/ssrn.1091475

Artyom Durnev (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

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Claudine Mangen

Concordia University, Montreal - John Molson School of Business ( email )

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