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Risk dynamics around restatement announcements

Author

Listed:
  • Katsiaryna Salavei Bardos

    (Fairfield University)

  • Brandon N. Cline

    (Mississippi State University)

  • Gregory Koutmos

    (Fairfield University)

Abstract

We investigate the dynamic nature and temporal daily changes in systematic (beta), as well as idiosyncratic and total risk around restatement announcements. We find that beta increases by 51% at restatement announcement but it reverts to the pre-restatement level within 1 month. However, idiosyncratic risk experiences a longer-term increase of approximately 20% following a restatement. Cross-sectional analysis shows that the results are more pronounced with restatements associated with irregularity. Overall, our findings suggest that risk components are time-varying with the systematic component rapidly mean-reverting but the idiosyncratic component experiencing a longer-term increase.

Suggested Citation

  • Katsiaryna Salavei Bardos & Brandon N. Cline & Gregory Koutmos, 2020. "Risk dynamics around restatement announcements," Review of Quantitative Finance and Accounting, Springer, vol. 54(4), pages 1279-1313, May.
    • Handle: RePEc:kap:rqfnac:v:54:y:2020:i:4:d:10.1007_s11156-019-00825-4
    DOI: 10.1007/s11156-019-00825-4
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    More about this item

    Keywords

    Disclosure; Corporate misreporting; Financial statement restatements; Beta; Idiosyncratic risk; EGARCH; Cost of capital;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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