Do Restatements Really Increase Substantially after the Sox? How Does the Stock Market React to Them? PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Do Restatements Really Increase Substantially after the Sox? How Does the Stock Market React to Them? PDF full book. Access full book title Do Restatements Really Increase Substantially after the Sox? How Does the Stock Market React to Them? by Ya Fang Wang. Download full books in PDF and EPUB format.
Author: Ya Fang Wang
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
Get Book Here
Book Description
We investigate the U.S. stock market's reactions to companies' restatements before and after SOX during a period from 1997 to 2005. This paper is motivated by the inconsistency between the targeted goal of SOX to improve financial reporting quality (proxied by the occurrence of restatements) and the ever-increasing trend in restatements after the passage of SOX. We focus on companies' voluntary restatements because they are more susceptible to the numerous provisions imposed by SOX on top management's misconducts, audit committees, and internal controls over financial reporting. We propose that, in examining the impacts of SOX on the association between restatements and stock prices, it is the years being restated that are of particular importance to the market participants rather than the announcement dates. We base our argument on a game's perspective that, if SOX is effective, taking as a package, in motivating high-quality financial reporting, companies shall be less willing to restate financial statements issued after SOX because market participants may consider such restatements as signals of non-compliance with SOX. In contrast, companies may be more willing to restate financial statements issued before SOX because market participants may regard such restatements as signals of enhanced internal controls and improved corporate governance. Using the years being restated to classify restatements into pre-SOX and post-SOX periods, we find that the well-documented increase in restatements after SOX (which are classified using the announcement dates) disappears. Instead, we observe a sharp decrease in restatements that are announced after SOX restating financial reports issued after SOX. Notably, we find that most of the restatements announced after SOX are made mainly to restate quarterly financials issued before SOX. After controlling for the self-selection bias resulting from voluntary restatements, we further show that market participants can distinguish between post-SOX restatements that restate financial statements issued before and after SOX, and react differently by focusing on different restatement characteristics. Overall, the empirical results support our conjecture that companies and market participants interact strategically toward restatements announced after SOX.
Author: Ya Fang Wang
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
Get Book Here
Book Description
We investigate the U.S. stock market's reactions to companies' restatements before and after SOX during a period from 1997 to 2005. This paper is motivated by the inconsistency between the targeted goal of SOX to improve financial reporting quality (proxied by the occurrence of restatements) and the ever-increasing trend in restatements after the passage of SOX. We focus on companies' voluntary restatements because they are more susceptible to the numerous provisions imposed by SOX on top management's misconducts, audit committees, and internal controls over financial reporting. We propose that, in examining the impacts of SOX on the association between restatements and stock prices, it is the years being restated that are of particular importance to the market participants rather than the announcement dates. We base our argument on a game's perspective that, if SOX is effective, taking as a package, in motivating high-quality financial reporting, companies shall be less willing to restate financial statements issued after SOX because market participants may consider such restatements as signals of non-compliance with SOX. In contrast, companies may be more willing to restate financial statements issued before SOX because market participants may regard such restatements as signals of enhanced internal controls and improved corporate governance. Using the years being restated to classify restatements into pre-SOX and post-SOX periods, we find that the well-documented increase in restatements after SOX (which are classified using the announcement dates) disappears. Instead, we observe a sharp decrease in restatements that are announced after SOX restating financial reports issued after SOX. Notably, we find that most of the restatements announced after SOX are made mainly to restate quarterly financials issued before SOX. After controlling for the self-selection bias resulting from voluntary restatements, we further show that market participants can distinguish between post-SOX restatements that restate financial statements issued before and after SOX, and react differently by focusing on different restatement characteristics. Overall, the empirical results support our conjecture that companies and market participants interact strategically toward restatements announced after SOX.
Author: Jeffrey J. Burks
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
Regulators have expressed concern that investors are ldquo;confusedrdquo; by the high volume and questionable materiality of accounting restatements since passage of the Sarbanes-Oxley Act (SOX). These concerns are consistent with a history of regulatory skepticism about investors' ability to process revisions to financial statements. This study looks for evidence of investor confusion over post-SOX restatements by examining stock returns and trading volume. I find that the initial price reaction to restatement announcements becomes significantly less negative after SOX, even after controlling for many restatement characteristics. To assess whether these less negative returns represent an underreaction, I test for negative post-restatement drifts in prices. Little evidence of drifts following post-SOX restatements is found. In fact, drifts following pre-SOX restatements are significantly larger, suggesting that pricing efficiency has improved. Finally, I find no evidence of confusion in the trading volume around post-SOX restatements. Thus, the findings provide little evidence that investors are confused by post-SOX restatements.
Author: Jana Hranaiova
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
Get Book Here
Book Description
We examine changes in the market's response to financial statement restatement announcements during the Sarbanes-Oxley (SOX) era. We define this era as beginning with the U.S. Department of Justice initiation of a criminal investigation into the collapse of Enron, and its attendant loss of billions of dollars of shareholder value, through the November 15, 2004, requirement that all U.S. companies with market capitalizations over $75 million must comply with SOX Section 404, which deals with corporate internal controls over financial reporting We divided the Sarbanes-Oxley era into pre- and post-SOX periods, with the dividing line concurrent with the signing of the Sarbanes-Oxley Act into law on July 30, 2002. The comparison of pre- and post-SOX periods shows that post-SOX, the negative impact on companies announcing restatements is reduced 71 percent on average (as measured by the cumulative abnormal return on days 0 and 1) and the positive market response to announced restatements is reduced by 33 percent. This translates into a net reduction in lost market value of $207 million per restatement announcement or $74.4 billion in total market value for the two-day announcement event window. We also find that this reduction is not due to the diluting effects of the increased number of statistically insignificant post-SOX market reactions to restatement announcements. Finally, our results indicate that after SOX became law, post-announcement abnormal returns exhibit statistically significant lower volatility and the trend in statistically insignificant market responses to restatement announcements no longer declines, thus indicating less uncertainty on the part of investors regarding the announcements of restating companies, and perhaps because investors believe the disclosed information conveyed by the restated financials is timelier and of higher quality.
Author: Daoguang Yang
Publisher: Taylor & Francis
ISBN: 1003848559
Category : Business & Economics
Languages : en
Pages : 178
Get Book Here
Book Description
By examining two different modes of internal control and the fundamentals of risk management, this book analyses the role of internal control in financing, investment, profit distribution, and corporate strategies through China's experience. In doing so, it confirms the effectiveness and superiority of internal control over operation and management. The book compares the various internal control methods used in China and the USA, namely, operation and management-oriented versus financial reporting-oriented approaches. It also discusses the differences in corporate risk attitudes and behaviours under the two approaches. The author then proposes the hyper-correction hypothesis and the trimming hypothesis. Empirical findings regarding corporate cash policy, mergers and acquisitions, tax avoidance, and diversification strategy reveal that internal control in China does not result in undue risk aversion but instead manages enterprise risk within a reasonable capacity. These results support the trimming hypothesis and demonstrate that internal control is a useful risk management tool. The title will appeal to students, academics, and accounting professionals interested in internal control (risk management), accounting, auditing and corporate finance, regulation and governance.
Author: Orice Williams
Publisher: DIANE Publishing
ISBN: 1422309177
Category :
Languages : en
Pages : 211
Get Book Here
Book Description
In 2002, it was reported that the number of restatement announcements due to financial reporting fraud &/or accounting errors grew significantly between Jan. 1997 & June 2002, negatively impacting the restating companies¿ market capitalization by billions of dollars. The author was asked to update key aspects of the 2002 report. This report discusses: (1) the number of, reasons for, & other trends in restatements; (2) the impact of restatement announcements on the restating companies¿ stock costs & what is known about investors¿ confidence in U.S. capital markets; & (3) regulatory enforcement actions involving accounting- & audit-related issues. Includes recommendations. Charts & tables.
Author:
Publisher:
ISBN:
Category : Business
Languages : en
Pages : 1098
Get Book Here
Book Description
Author: Wilma H. Fletcher
Publisher: Nova Publishers
ISBN: 9781604560879
Category : Business & Economics
Languages : en
Pages : 176
Get Book Here
Book Description
The Sarbanes-Oxley Act of 2002, PL 107-204 described by some as the most important and far-reaching securities legislation since passage of the Securities Act of 1933, 15 USC §§ 77a et seq, and the Securities Exchange Act of 1934, 15 USC §§ 78a et seq, both of which were passed in the wake of the Stock Market Crash of 1929. The Act establishes a new Public Company Accounting Oversight Board which is to be supervised by the Securities and Exchange Commission. The Act restricts accounting firms from performing a number of other services for the companies which they audit. The Act also requires new disclosures for public companies and the officers and directors of those companies. Among the other issues affected by the new legislation are securities fraud, criminal and civil penalties for violating the securities laws and other laws, blackouts for insider trades of pension fund shares, and protections for corporate whistleblowers. This book contains important analyses on the impact of this Act.
Author: Denton Collins
Publisher:
ISBN:
Category :
Languages : en
Pages : 44
Get Book Here
Book Description
We investigate involuntary chief financial officer (CFO) turnover following earnings restatements, the labor market penalties imposed on former restatement-firm CFOs, and whether these disciplinary consequences have increased following the passage of the Sarbanes-Oxley Act of 2002 (SOX). Our results suggest that, relative to a control group of non-restating firms, firms restating earnings have higher rates of involuntary CFO turnover, and that former restatement-firm CFOs face stiff labor market penalties. We generally find that the passage of SOX has not increased involuntary CFO turnover rates following restatements. However, we find that labor market penalties for former CFOs of restatement firms are more severe in the post-SOX period, suggesting that SOX has increased ex post settling up costs. Our results suggest that the influence of SOX on the labor market has resulted in CFOs being held more accountable for their actions.
Author: Jun Yuan Lim
Publisher:
ISBN:
Category : Accounting and price fluctuations
Languages : en
Pages : 180
Get Book Here
Book Description
My thesis examines the influence of investor sentiment on the announcement of restatements of financial information by companies. I examine two aspects: how market sentiment affects investors’ response to a restatement and manager’s disclosure choices as a result of these effects. Further, I consider how the individual characteristics of the restatement will affect the above. I find positive (negative) market sentiment increases (decreases) a negative share price reaction to a restatement. This is dependent on the characteristics of the restatement, with those adversely affecting past year financial statements resulting in more negative share price reactions when sentiment is positive whereas the opposite relationship is seen for those involving past year’s revenues. Entailing from the observed relationship, I expect and observe managers opportunistically varying disclosure venues by announcing adverse (revenue misstatement) restatements in the more (less) transparent venues of press release and SEC filings. In contrast to my expectations, I find among SEC filing types, the likelihood of the more transparent Form 8-K disclosure increases when the effect of sentiment on the restatement type is to increase negative market reactions to the initial announcement. However, I believe this result is affected by the issuance of the SEC ruling with regards to Form 8-K disclosure, leaving managers little opportunities to vary their disclosure choices.
Author: Zoe-Vonna Palmrose
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
Get Book Here
Book Description
We examine the market reaction to a sample of 403 restatement announcements made from 1995 to 1999. We find significantly negative average abnormal returns of about 9 percent over a two-day announcement window. We also document substantial variance in the abnormal returns. Our analysis indicates that more severe reactions are related to indications of management fraud, more material dollar effects and restatements that are attributed to auditors. We hypothesize that the negative signal associated with fraud and auditor-initiated restatements is associated with an increase in investors' expected monitoring costs, while higher materiality is associated with greater revisions of future performance expectations.
