Title
Long-run equity performance of firms that restate financial statements
Document Type
Article
Publication Date
11-14-2019
Publication Title
Managerial Finance
Volume
46
First Page
92
Last Page
108
Keywords
Buy-and-hold abnormal returns, Financial statements, Four-factor model, Long-run performance, Restatements, Three-factor model
Abstract
© 2019, Emerald Publishing Limited. Purpose: The authors investigate how the stock market reacts to financial restatements using the restatements data from the United States Government Accountability Office (GAO-06-678). In particular, the purpose of this paper is to examine the long-run equity performance of the restating firms, for holding periods of one to five years after the announcements of restatements. Design/methodology/approach: This paper measures the long-run stock performance of restating firms with the buy-and-hold abnormal returns and time-series regression analyses based on Fama–French’s (1993) three-factor model and Carhart’s (1997) four-factor model. Findings: The authors find that restating firms significantly underperform in the long run compared with their peers matched by industry, size and book-to-market. Restating firms’ underperformance is confirmed with time-series regression analyses based on Fama–French’s (1993) three-factor model and Carhart’s (1997) four-factor model. Further, the authors find the negative long-run abnormal performance of restating firms is primarily driven by large firms. The authors also report that self-prompted restatements and improper revenue accounting-triggered restatements result in worse long-run abnormal performance. Originality/value: This paper is the first paper that thoroughly investigates the long-run stock returns of the firms that restate financial statements by fully considering the size effect.
Recommended Citation
Moon, Gisung; Lee, Hongbok; and Waggle, Doug, "Long-run equity performance of firms that restate financial statements" (2019). Faculty Bibliography. 2741.
https://csuepress.columbusstate.edu/bibliography_faculty/2741