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Discussion of “The Effect of Accounting Restatements on Earnings Revisions and the Estimated Cost of Capital”

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  • Ron Kasznik

    (Stanford University)

Abstract

The Hribar and Jenkins study (2004, this issue) investigates the effect of accounting restatements on firms' cost of equity capital. The authors document that the loss of market value associated with restatement announcements is attributable not only to a downward revision in expected future earnings but also to an increase in implied cost of capital. This finding is consistent with the conjecture that restatements lead to increased investors' uncertainty about management credibility and competence, as well as to concerns about overall earnings quality. My discussion evaluates the motivation for the research question, addresses a number of key research design issues, particularly the estimation of implied cost of capital, and offers some suggestions for future research.

Suggested Citation

  • Ron Kasznik, 2004. "Discussion of “The Effect of Accounting Restatements on Earnings Revisions and the Estimated Cost of Capital”," Review of Accounting Studies, Springer, vol. 9(2), pages 357-367, June.
    • Handle: RePEc:spr:reaccs:v:9:y:2004:i:2:d:10.1023_b:rast.0000028195.61508.b6
    DOI: 10.1023/B:RAST.0000028195.61508.b6
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    References listed on IDEAS

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    1. Abarbanell, Jeffery S., 1991. "Do analysts' earnings forecasts incorporate information in prior stock price changes?," Journal of Accounting and Economics, Elsevier, vol. 14(2), pages 147-165, June.
    2. Frankel, Richard & Lee, Charles M. C., 1998. "Accounting valuation, market expectation, and cross-sectional stock returns," Journal of Accounting and Economics, Elsevier, vol. 25(3), pages 283-319, June.
    3. Ron Kasznik & Maureen F. McNichols, 2002. "Does Meeting Earnings Expectations Matter? Evidence from Analyst Forecast Revisions and Share Prices," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 40(3), pages 727-759, June.
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    Cited by:

    1. Todd Kravet & Terry Shevlin, 2010. "Accounting restatements and information risk," Review of Accounting Studies, Springer, vol. 15(2), pages 264-294, June.

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