Determinants of Market Reactions to Restatement Announcements

Posted: 1 Dec 2003

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

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Abstract

We examine the market reaction to a sample of 403 restatements announced from 1995 to 1999. We document an average abnormal return of about -9 percent over a two-day announcement window. We find that more negative returns are associated with restatements involving fraud, affecting more accounts, decreasing reported income and attributed to auditors or management (but not the SEC). There appears to be an additional penalty for announcements that do not quantify the restatement. Finally, we provide evidence on the relation between restatement announcements and analyst earnings forecast dispersion, bid-ask spreads and subsequent revisions in analyst earnings forecasts.

Keywords: misstatements, fraud, auditor

JEL Classification: M41, G12, G29, K22, M49

Suggested Citation

Palmrose, Zoe-Vonna and Richardson, Vernon J. and Scholz, Susan, Determinants of Market Reactions to Restatement Announcements. Journal of Accounting & Economics, Vol. 37, No. 1, pp. 59-89, February 2004. Available at SSRN: https://ssrn.com/abstract=474384

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

University of Arkansas at Fayetteville ( email )

401 WCOB
Fayetteville, AR 72701
United States

Susan Scholz (Contact Author)

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)

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