Corporate Investments: Learning from Restatements

55 Pages Posted: 27 Apr 2009

See all articles by Art Durnev

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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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.

Suggested Citation

Durnev, Artyom and Mangen, Claudine, Corporate Investments: Learning from Restatements. Available at SSRN: https://ssrn.com/abstract=1378291 or http://dx.doi.org/10.1111/j.1475-679X.2009.00332.x

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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