Determinants of Market Reactions to Restatement Announcements

University of Kansas Working Paper

38 Pages Posted: 2 Apr 2001

See all articles by Zoe-Vonna Palmrose

Zoe-Vonna Palmrose

University of Southern California

Vernon J. Richardson

University of Arkansas at Fayetteville

Susan Scholz

University of Kansas - Accounting and Information Systems Area

Multiple version iconThere are 2 versions of this paper

Date Written: March 2001

Abstract

We examine the market reaction to a sample of 403 restatement announcements made from 1995 to 1999. We find significantly negative average abnormal returns of about 9 percent over a two-day announcement window. We also document substantial variance in the abnormal returns. Our analysis indicates that more severe reactions are related to indications of management fraud, more material dollar effects and restatements that are attributed to auditors. We hypothesize that the negative signal associated with fraud and auditor-initiated restatements is associated with an increase in investors' expected monitoring costs, while higher materiality is associated with greater revisions of future performance expectations.

Keywords: Restatement; Stock market reaction; Fraud; Audit; Auditor; SEC

JEL Classification: M41, G12, K22, M49

Suggested Citation

Palmrose, Zoe-Vonna and Richardson, Vernon J. and Scholz, Susan, Determinants of Market Reactions to Restatement Announcements (March 2001). University of Kansas Working Paper. Available at SSRN: https://ssrn.com/abstract=265009 or http://dx.doi.org/10.2139/ssrn.265009

Zoe-Vonna Palmrose

University of Southern California ( email )

Marshall School of Business, 0441
Los Angeles, CA 90089-0441
United States
213-740-5019 (Phone)
213-747-2815 (Fax)

Vernon J. Richardson (Contact Author)

University of Arkansas at Fayetteville ( email )

401 WCOB
Fayetteville, AR 72701
United States

Susan Scholz

University of Kansas - Accounting and Information Systems Area ( email )

1300 Sunnyside Ave
Lawrence, KS 66045
United States
785-864-7554 (Phone)
785-864-5328 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
2,688
Abstract Views
9,305
rank
4,585
PlumX Metrics