Accounting Restatements and Information Risk

50 Pages Posted: 9 Nov 2006 Last revised: 4 Mar 2010

See all articles by Todd D. Kravet

Todd D. Kravet

University of Connecticut - Department of Accounting

Terry J. Shevlin

University of California-Irvine; University of California-Irvine

Date Written: April 22, 2009

Abstract

We examine the association between accounting restatements and the pricing of information risk. Using the Fama and French three-factor model augmented with an information risk factor we find a significant increase in the factor loadings on the information risk factor for restatement firms after a restatement announcement. We find that the increase is related to the discretionary component of information risk and associated with the short-window price reaction to restatements. We study several potential determinants of the change in information risk pricing and find evidence consistent with the restatement reason, restatement initiator and number of times a firm restates affecting the change in the pricing of information risk. We also find an increase, of smaller magnitude, in the pricing of information risk for non-restatement firms in the same industries as the restatement firms consistent with an information transfer effect.

Keywords: restatements, information risk, earnings quality, cost of capital

JEL Classification: M41, G12

Suggested Citation

Kravet, Todd D. and Shevlin, Terry J. and Shevlin, Terry J., Accounting Restatements and Information Risk (April 22, 2009). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=943091

Todd D. Kravet (Contact Author)

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

Terry J. Shevlin

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States
2065509891 (Phone)

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA 92697-3125
United States
949-824-6149 (Phone)

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