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The effect of investor sentiment on market reactions to financial earnings restatements: Lessons from the United States

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  • Bouteska, Ahmed

Abstract

The aim of the present research is to investigate the moderating impact of investor sentiment on the effect of earnings restatements on market valuation for a securities sample from the US stock market. Using an econometric approach based on event study methodology and multivariate regression models after taking into account macroeconomic factors, firm characteristics and size of earnings restatements, our empirical results reveal that one-standard deviation increase in investor sentiment increases cumulative abnormal return (CAR) by about 0.56%. In addition, our findings clearly indicate that during periods of high investor sentiment the US market reacts more favorably to adverse earnings restatement events. This suggests that investor conservatism represents a dominant factor to explain the positive relationship between CAR and investor sentiment. Over the 2002 to 2017 time period, we employed investor sentiment measure and accounting data. The main implication of these findings is to improve understanding of how investors’ behavioral characteristics affect the transmission mechanism of information in money market and capital market prices.

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  • Bouteska, Ahmed, 2019. "The effect of investor sentiment on market reactions to financial earnings restatements: Lessons from the United States," Journal of Behavioral and Experimental Finance, Elsevier, vol. 24(C).
    • Handle: RePEc:eee:beexfi:v:24:y:2019:i:c:s2214635019300693
    DOI: 10.1016/j.jbef.2019.100241
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    More about this item

    Keywords

    Behavioral finance; Investor sentiment; Earnings restatements; Event studies; Market reaction; U.S stock market;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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