Restatements: Investor Response and Firm Reporting Choices

Abstract

This paper examines accounting restatements from two perspectives. First, we examine the market reaction to restatement filings, using both returns and volume measures. We document that the earnings impact and whether a firm discloses the restatement through an 8K filing provides the most consistent explanatory power in our models. Second, we explore whether attributes of the restatement or of the firm are associated with whether a firm files and 8K or not. Our findings suggest that firms are strategic in their decision to employ an 8K; however it is unclear that the decision to file or not file an 8K is related to an attempt by firms to diminish investors' awareness of the restatement.

Keywords: Restatement, Market Reaction, SEC, 8K

JEL Classification: G12, M41, M43, K22, G38