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Differential Investors Response to Restatement Announcements: An Empirical Investigation

Author

Listed:
  • Sebahattin Demirkan

    (Morgan State University)

  • Harlan Platt

    (Northeastern University)

Abstract

When firms announce a restatement of their financial reports, they inform investors that their prior announcements were faulty. Not only do companies lose credibility at times such as this but also their securities are revalued as investors respond to the substance of the announcement. We investigate investor size to understand how large and small investors differ in their responses to restatement announcements. Our results indicate that large investors seemingly anticipate the announcement; their holdings decrease before restatement announcements; consequently large investors trading after announcements is less pronounced than for smaller investors. The response of small investors depends on who has prompted the restatement: the company itself, FASB or the SEC and not on the reason for the restatement such as problems with revenue recognition, restructuring or cost/expense. Large investor trading volume is affected by both the source of the restatement and the reason for it. Large investors seem to anticipate potential problems, and sell securities before restatement announcements.

Suggested Citation

  • Sebahattin Demirkan & Harlan Platt, 2018. "Differential Investors Response to Restatement Announcements: An Empirical Investigation," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 2(2), pages 29-59.
    • Handle: RePEc:trp:01jefa:jefa0017
    DOI: http://dx.doi.org/10.1991/jefa.v2i2.a17
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    References listed on IDEAS

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    More about this item

    Keywords

    Restatement; Investor Size; Information; Trading Response; Prompters of restatement; Reasons of Restatements.;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D49 - Microeconomics - - Market Structure, Pricing, and Design - - - Other
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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