Publication Type

Journal Article

Publication Date

1-2014

Abstract

Prior research finds that the decline in the information content of earnings after restatement announcements is short-lived and the earnings response coefficient (ERC) bounces back after three quarters. We re-examine this issue using a more recent and comprehensive sample of restatements. We find that material restatement firms experience a significant decrease in the ERC over a prolonged period—close to three years after restatement announcements. In contrast, other restatement firms experience a decline in the ERC for only one quarter. We further find that among material restatement firms, those that are subject to more credibility concerns and those that do not take prompt actions to improve reporting credibility experience a longer drop in the ERC. Last, reconciling with prior research, we find that using a more powerful proxy for material restatements and imposing less restrictive sampling requirements help to increase the power of the tests to detect the long-run drop in the ERC.

Keywords

accounting restatements, information content of earnings, accounting irregularities

Discipline

Accounting | Corporate Finance

Research Areas

Financial Intermediation and Information

Publication

Accounting Review

Volume

89

Issue

1

First Page

177

Last Page

207

ISSN

0001-4826

Identifier

10.2308/accr-50594

Publisher

American Accounting Association

Copyright Owner and License

Authors

Additional URL

http://doi.org/10.2308/accr-50594

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