Discretionary Disclosure and the Market Reaction to Restatements

48 Pages Posted: 18 Sep 2006 Last revised: 12 Dec 2011

See all articles by Elizabeth A. Gordon

Elizabeth A. Gordon

Temple University - Department of Accounting

Elaine Henry

Stevens Institute of Technology - School of Business

Marietta Peytcheva

Lehigh University

Lili Sun

University of North Texas - Department of Accounting

Date Written: August 3, 2011

Abstract

This paper presents evidence that management’s disclosure choices prior to a restatement are associated with the market reaction at the time the restatement is announced. The two aspects of pre-restatement disclosure choice we examine are the amount of disclosure, hypothesized to reduce information asymmetries, and the tone of disclosure, hypothesized to exacerbate the effect of subsequently-disconfirmed market expectations. Our results provide support for both hypothesized effects, controlling for characteristics that previous research has shown to affect market reaction to restatements – financial attributes of restatements, and concurrent disclosure choices such as prominence of the announcement. We also find that concurrent and prior disclosure characteristics have equivalent and complementary power in explaining market reaction to restatements, while interactive effects indicate that pre-restatement disclosure choices reduce the marginal market impact of concurrent disclosure characteristics.

.

Keywords: Restatement, Tone, Discretionary Disclosure, Fraud

JEL Classification: G14

Suggested Citation

Gordon, Elizabeth A. and Henry, Elaine and Peytcheva, Marietta and Sun, Lili, Discretionary Disclosure and the Market Reaction to Restatements (August 3, 2011). Available at SSRN: https://ssrn.com/abstract=930540 or http://dx.doi.org/10.2139/ssrn.930540

Elizabeth A. Gordon

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
2152046422 (Phone)

Elaine Henry

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Marietta Peytcheva

Lehigh University ( email )

621 Taylor Street
Bethlehem, PA 18015
United States
610 758 2818 (Phone)
610 758 5992 (Fax)

Lili Sun (Contact Author)

University of North Texas - Department of Accounting ( email )

1155 Union Circle #305219
Denton, TX 76203-5017
United States
940-565-3077 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
406
Abstract Views
1,393
rank
38,880
PlumX Metrics