The Economic Consequences of Financial Restatements: Evidence from the Market for Corporate Control

51 Pages Posted: 4 Sep 2012 Last revised: 19 Jun 2014

See all articles by Amir Amel-Zadeh

Amir Amel-Zadeh

University of Oxford - Said Business School

Yuan Zhang

University of Texas at Dallas

Date Written: June 1, 2014

Abstract

This paper investigates whether and how financial restatements affect the market for corporate control. We show that firms that recently filed financial restatements are significantly less likely to become takeover targets than a propensity score-matched sample of non-restating firms. For those restating firms that do receive takeover bids, the bids are more likely to be withdrawn or take longer to complete than those made to non-restating firms. Finally, there is some evidence that deal value multiples are significantly lower for restating targets than for non-restating targets. Our analyses suggest that the information risk associated with restating firms is the main driver of these results. Overall, this study finds that financial restatements have profound consequences for the allocation of economic resources in the market for corporate control.

Keywords: Financial Restatements; Market for Corporate Control; Mergers and Acquisitions; Information Risk; Corporate Governance

JEL Classification: D82, G14, G34, M41

Suggested Citation

Amel-Zadeh, Amir and Zhang, Yuan, The Economic Consequences of Financial Restatements: Evidence from the Market for Corporate Control (June 1, 2014). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2141143 or http://dx.doi.org/10.2139/ssrn.2141143

Amir Amel-Zadeh (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Yuan Zhang

University of Texas at Dallas ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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