Revisions in Corporate Earnings Forecasts and Common Stock Returns

If an earnings restatement is simply an accounting adjustment to old information that is no longer being used for valuation purposes, it will not necessarily cause a change in a firm's value. However, the restatement may contain information that is used to reassess the future cash flows and credibility of the firm. It is found that the earnings restatements elicit a strong negative market response. Moreover, the market response is conditioned on the content of the earnings restatements. The market-imposed penalty is more severe when the restatement is attributed to an adjustment in revenue, when it is forced by the auditor or the SEC, and when the revised earnings level is lower than two proxies used to measure expected earnings.

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Why are some corporate earnings restatements more damaging?

Akhigbe

Kudla

Madura

2005

Applied Financial Economics

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Earnings Management: The Effect of Ex Ante Earnings Expectations

Payne

Robb

2000

Journal of Accounting, Auditing & Finance

225

124

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Revisions in Corporate Earnings Forecasts and Common Stock Returns

Cited by 2 publications

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Why are some corporate earnings restatements more damaging?

Why are some corporate earnings restatements more damaging?

Earnings Management: The Effect of Ex Ante Earnings Expectations

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