Research On Market Reaction Of Financial Restatement In Listed Companies

Annual financial report is one of the most important sources for each related group of a listed company to understand its production and management. Thus, reliability is a fundamental requirement for an annual financial report. However, in recent years, there are more and more financial restatements, in a way of supplement or amendment, emerged in Chinese security market. This has lead to a wide attention of domestic scholars. The financial restatements means that the annual reports of a listed company has omissions or errors, which causes the investors to re-evaluate the market value of the company, so they will change their formal decisions and buy or sell a stock. Through making empirical research of accumulative abnormal return ratio of stock before and after release of financial restatement, we analyzed different market reaction towards financial restatements with different features, such as different natures, reasons, contents, etc.The paper is consisted of the following four parts:Part Ⅰ. Introduction, including the background information, related literature review, research framework, content and method.PartⅡ. Theory analysis, about effects caused by financial restatements of listed company. We first define the concept of financial restatement and the market response of financial restatement. and then analyze the reaction mechanism on basis of relevant theories.PartⅢ. Description and analysis about current situation of financial restatement in domestic market. By introducing the system background of financial restatement, we analyzes the listed companies which have published financial restatement from 2007 and 2008.PartⅣ. Empirical study. Through analyzing the daily and accumulative abnormal return ratio before and after release of financial restatement, we analyze the market effect of financial restatements with different characteristics (including different natures, reasons and contents) PartⅤ. Conclusion, limitation and prospect, which present our conclusion of this study, summarized the limitations of this paper, and eventually, outlook for future research.The paper reaches some conclusions as follows:First, financial restatement will definitely lead a reaction in capital market, but the market reaction is not completely in line with content of the relevant restatement report; Second, in recent years, there are more and more financial restatement occurred in Chinese market, among which the correction reports has the highest proportion and spreads most bad news to market; Third, the overall effect of the financial restatement is negative in China, but the impact is less serious compared with the foreign capital market; Fourth, financial restatement with different characteristics lead to different market effect, the restatement which more largely influences the value of the company will have greater impact on stock market.The innovation of this paper lies in, first, we choose the Chinese a-share companies which have released financial restatements from 2007 to 2008 as samples, to make statistical analysis and conclude the features for distribution of financial restatements. This article is based on the empirical research, supplemented with normative research. We classify and analyze the financial restatements with different natures, reasons and contents, to reach a conclusion for relevant investors and governments as reference.