Research On Information Content Of Financial Restatements

Many restatements have been announced in the last decade, ranging from well-know incidents involving firms such as WorldCom,Qwest,Tyco, to numerous, less noteworthy restatements. Concern regarding earnings restatements is not limited to statements by SEC and other regulatory officials. Analysis has also concern about it very much. This paper analyses the characteristics of the change in the information content of earnings following restatements in current China capital market mainly by positive method, and select 1693 companies who publish restatements from year 2002 to year 2009 as samples. Those companies are categorized into two types basing on whether the restatement is compulsive: initiative and passiveness. Then we try to find out the information content in restatement by event study.Results indicate that, no matter short-term or long-term, market could recognize the two kinds of restatements, and reflect differently to different type of statement respectively. From short-term point of view, market would reflect positively for initiative restatement while reflects negatively for supervised restatement. From long-term point of view, market could also tell the difference between initiative restatement and passiveness restatement, as a result, the ERC is always increased after the restatement was published for the former while decreased for the latter.