Intra‐Industry Effects of Earnings Restatements Due to Accounting Irregularities

Xu, Tan; Najand, Mohammad; Ziegenfuss, Douglas E.

doi:10.1111/j.1468-5957.2006.00607.x

Cited by 77 publications

(82 citation statements)

References 20 publications

(39 reference statements)

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“…Moreover, in 29% of restatement announcements analyzed by Palmrose et al (2004), the restating firm experienced non-negative abnormal returns. Xu et al (2006) provide evidence that the stock prices of industry peers move on average in the same direction as the stock prices of the restating firms and interpret these results as consistent with an intra-industry information transfer.…”

Section: Restatement By An Industry Peersupporting

confidence: 53%

“…In that context, financial restatements by industry peers, although not ideal, provide several important advantages. First, previous research (Gleason et al 2008;Xu et al 2006) finds significantly negative cumulative abnormal returns for industry peers of the restating firm on the 3 days surrounding a restatement announcement (hereafter ''contagion effect''). Thus, restatements are events during which investors revise firm valuations based on the probability that the peer firms will also restate.…”

Section: Restatement By An Industry Peermentioning

confidence: 98%

“…This setting offers several advantages. As documented by recent literature (Gleason et al 2008;Xu et al 2006), peers of restating firms experience on average negative cumulative abnormal returns at the time of the restatement announcement (henceforth contagion effect). 4 This provides a public event generating a shock to stock prices.…”

mentioning

confidence: 92%

“…However, if the stock price exogenously declines below $27 per share, the manager will release her information about future earnings because her disclosure will be now associated with a positive market reaction. 4 Moreover, Xu et al (2006) also find that industry peers of firms whose restatement results in a negative (positive) market reaction incur negative (positive) contagion.…”

mentioning

confidence: 94%

“…The most obvious effect of a restatement is that investors believe that other firms in the industry are more likely to restate their earnings as well. Poorer expected earnings for these peer firms lead to stock price declines (Gleason et al 2008;Xu et al 2006). As a result, managers of nonrestating peer firms who withheld bad news are likely to find that the new stock price is lower than their own private information indicates.…”

mentioning

confidence: 96%

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The effect of stock price on discretionary disclosure

Sletten

2011

Rev Account Stud

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I examine the impact of exogenous changes in stock prices on voluntary disclosure. Specifically, I investigate whether stock price declines prompt managers to voluntarily disclose firm-value-related information (management forecasts) that was withheld prior to the decline because it was unfavorable but became favorable at a lower stock price. Consistent with my predictions, I find that managers are more likely to release good-news forecasts following larger stock price declines but that there is no association between the likelihood of releasing good-news forecasts and the magnitude of stock price increases. Additional evidence indicates that the goodnews forecasts eventually conveyed by withholding firms after negative price shocks would likely have resulted in negative market reactions had they been released before the shocks. More generally, I provide evidence that managers withhold bad news and that exogenous stock price declines can induce its disclosure.

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Section: Restatement By An Industry Peersupporting

confidence: 53%

Section: Restatement By An Industry Peermentioning

confidence: 98%

mentioning

confidence: 92%

mentioning

confidence: 94%

mentioning

confidence: 96%

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