The Spillover Effects of Restatement Tone for Industry Investment

Abstract

This study explores the spillover effects of the tone of restatement press releases for the investments of rival firms. Our results show that changes in rivals’ investments after a restatement are significantly positively associated with the tone of restatement press releases, and that this association weakens over time as the restatements recede into the past. Moreover, we document that the association between changes in rivals’ investments and restatement tone varies cross-sectionally with how the restatement is framed, and with rivals’ corporate governance and financing mechanisms. Our study suggests that tone of restatement press releases provides information relevant for rivals’ investments.

Keywords: Restatements; Tone; Spillover Effects; Industry Investment

JEL Classification: G00