Risk Dynamics Around Restatement Announcements

Review of Quantitative Finance and Accounting, Forthcoming

61 Pages Posted: 27 Jan 2020

See all articles by Katsiaryna Bardos

Katsiaryna Bardos

Fairfield University

Brandon N. Cline

Mississippi State University

Gregory Koutmos

Fairfield University - Charles F. Dolan School of Business

Date Written: May 4, 2019

Abstract

We investigate the dynamic nature and temporal daily changes in systematic (beta), as well as idiosyncratic and total risk around restatement announcements. We find that beta increases by 51% at restatement announcement but it reverts to the pre-restatement level within one month. However, idiosyncratic risk experiences a longer-term increase of approximately 20% following a restatement. Cross-sectional analysis shows that the results are more pronounced for restatements associated with irregularity. Overall, our findings suggest that risk components are time-varying with the systematic component rapidly mean-reverting but the idiosyncratic component experiencing a longer-term increase.

Suggested Citation

Bardos, Katsiaryna and Cline, Brandon N. and Koutmos, Gregory, Risk Dynamics Around Restatement Announcements (May 4, 2019). Review of Quantitative Finance and Accounting, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3512964

Katsiaryna Bardos (Contact Author)

Fairfield University ( email )

Dolan School of Business
1073 North Benson Road
Fairfield, CT 06824
United States

Brandon N. Cline

Mississippi State University ( email )

Mississippi State, MS 39762
United States
662.325.7477 (Phone)
662.325.1977 (Fax)

Gregory Koutmos

Fairfield University - Charles F. Dolan School of Business ( email )

Dolan School of Business
N. Benson Road
Fairfield, CT 06824
United States
203-254-4000 Ext. 2832 (Phone)

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