Are Investors Confused by Restatements after Sarbanes-Oxley?

Posted: 12 Sep 2008 Last revised: 14 Apr 2011

Date Written: August 1, 2009


Regulators have expressed concern that investors are “confused” by the high volume and questionable materiality of accounting restatements since passage of the Sarbanes-Oxley Act (SOX). These concerns are consistent with a history of regulatory skepticism about investors’ ability to process revisions to financial statements. This study looks for evidence of investor confusion over post-SOX restatements by examining stock returns and trading volume. I find that the initial price reaction to restatement announcements becomes significantly less negative after SOX, even after controlling for many restatement characteristics. To assess whether these less negative returns represent an underreaction, I test for negative post-restatement drifts in prices. Little evidence of drifts following post-SOX restatements is found. In fact, drifts following pre-SOX restatements are significantly larger, suggesting that pricing efficiency has improved. Finally, I find no evidence of confusion in the trading volume around post-SOX restatements. Thus, the findings provide little evidence that investors are confused by post-SOX restatements.

Keywords: Restatements, Sarbanes-Oxley

JEL Classification: M40, M41

Suggested Citation

Burks, Jeffrey J., Are Investors Confused by Restatements after Sarbanes-Oxley? (August 1, 2009). Accounting Review, Vol. 86, No. 2, pp. 507-539, 2011, AAA 2009 Financial Accounting and Reporting Section (FARS) Paper, Available at SSRN:

Jeffrey J. Burks (Contact Author)

University of Notre Dame ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

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