The Relationship between Financial Restatement and the Stock Market Reaction

• Main Authors: Chih-Ming Shao, 邵志明
• Other Authors: 林世銘
• Format: Others
• Language: zh-TW
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/65224596448170929780

碩士 === 國立臺灣大學 === 會計與管理決策組 === 100 === This paper examines the relationship between financial restatement and stock market reaction. First, according to our analysis of the annual report restatements of listed firms over past 20 years, the total number of restatements is 376 times. The restatements of accounting error have 250 times which occupy 66% of total amount. Furthermore, the proportion of equity investment leading accounting error restatements is the highest which occupies 38%. We find restatements involving income over-estimation account for 74% of the total number of restatements, and 60% of the restatements are initiated by the authoritative regular. Second, we use event study approach to review the effect of the financial reporting restatement on stock market. Our results show the average stock return of the restatement was -0.6%. We analyze the effect of restatement on net income, and find stock return of income over-estimation companies (income under-estimation companies) was -2% (+3.6%). We also analyze the effect of initiator of restatement, and find the stock return of restatement was -0.9% when the regulator is the initiator. At last, we find that illegal insider trading exists in the market due to the restatement event. When the past income is over-estimated (under-estimaed), the stock return decreases by -1% (+1%) on night days (four days) before the day of announcement day and decreases by -2% (+3.6%) on the day of announcement. Finally, according to the empirical results, we suggest that the regulator enact penalty and build prevention mechanism for illegal insider trading resulting from financial reporting restatement. This will keep the fair principle of the stock market.