Stealth Disclosure of Accounting Restatements

46 Pages Posted: 13 May 2009 Last revised: 9 Sep 2011

See all articles by Rebecca Files

Rebecca Files

University of Texas at Dallas

Edward P. Swanson

Texas A&M University - Mays Business School; Mays Business School, Texas A&M University

Senyo Y. Tse

Texas A&M University - Lowry Mays College & Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 27, 2009

Abstract

Managers exercise considerable discretion over how they announce an accounting restatement in a press release. Some firms issue a press release that discloses the restatement in the headline (high prominence). Others provide a press release with a headline on a different subject (for example, earnings news) but describe the restatement in the body of the release (medium prominence). The remaining firms discuss the restatement at the end of the press release in a footnote to operating results (low prominence). Mean three-day returns differ considerably across these three categories of prominence (-8.3, -4.0, and -1.5 percent, respectively). We find that disclosure prominence is significantly negatively associated with returns in a model that controls for the seriousness of the GAAP violation, restatement magnitude, other restatement characteristics, and potential endogeneity. Similarly, we find the likelihood of class action lawsuits is significantly reduced with less prominent disclosure.

Keywords: accounting restatements, press release disclosure, voluntary disclosure

JEL Classification: G14, K22, K41, M14, M43, M45

Suggested Citation

Files, Rebecca and Swanson, Edward P. and Tse, Senyo Y., Stealth Disclosure of Accounting Restatements (April 27, 2009). Accounting Review, Vol. 84, No. 5, pp. 1495-1520, September 2009. Available at SSRN: https://ssrn.com/abstract=1395768

Rebecca Files

University of Texas at Dallas ( email )

800 West Campbell Road, SM 41
Richardson, TX 75080-3021
United States
9728835818 (Phone)

Edward P. Swanson (Contact Author)

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4353
United States
979-845-8970 (Phone)
979-845-0028 (Fax)

Mays Business School, Texas A&M University ( email )

Wehner, MS 4353
College Station, TX 77843-4353
United States
979-845-5014 (Phone)
979-845-0028 (Fax)

Senyo Y. Tse

Texas A&M University - Lowry Mays College & Graduate School of Business ( email )

Wehner 401Q, MS 4353
456C
College Station, TX 77843-4218
United States
979-845-3784 (Phone)

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