Research On Financial Reports Restatement Of Listed Companies In China And Its Market Reaction

With the rapid development of China’s economy, China’s capital market has also madea great leap forward. The number and enthusiasm of investors is also growing. At the sametime, the financial report as the mean way for an investor to understand the quality of alisted company’s financial position, operating results and cash flows, the disclosure ofinformation has been public concerned. Since the efficient market hypothesis is putforward, a highly efficient and real financial report has been considered as a key for thehealthy and rapid development of a stock market. A healthy stock market forms, only whena listed company has an efficient, real and reliable financial information disclosure quality.However, in recent years, domestic and foreign financial reports restatement hasintensified. It seriously impacts the quality of information disclosure, and reduces theinvestor’s enthusiasm, which severely hampers the development of securities markets. Tothis end, scholars at home and abroad seriously study this phenomenon, and they selectedcertain restatement related to all aspects of financial reporting from different perspectiveswith certain research methods, and achieved certain results. Compared with foreign,because China’s securities market is built later and financial reports restatements is foundlater, which makes the research of financial reports restatement rather shallow. In addition,because our own economic environment and institutional context has a certain degree ofparticularity, whether financial reports restatements in China’s stock market will lead acertain degree of market reaction like the researches of foreign scholars? This issuedeserves discussion. So it is very necessary to this paper to study the market reaction offinancial reports restatements.This paper includes the following sections: the first is the introduction wheredescribes the background, significance, research methods, innovation and basic frameworkof this paper. This part also reviews the references home and abroad relevant to financialreports restatement, analyzing proposition and weak point of previous studies andresearches, which offers research directions for this paper. The second is the theoryanalysis about the market reaction of financial reports restatement. This part introduces the relative definitions about financial reports restatement and describes the efficient markethypothesis, the reaction mechanism of the financial report restatement to market andevent-study method. The third is the empirical study design. This part points out theassumptions of this study, sample selection and sources as well as specific steps. Thefourth is empirical analysis, checking correctness of the assumptions raised in the previouspart. The fifth concludes conclusions drawn from this empirical study, policyrecommendations and deficiencies in this paper and its outlook in the future.This study found that, financial reports restatement will bring about a negative marketreaction; different types of financial reports restatement will cause different degrees ofmarket reaction: the market reaction due to corrective type is the most dramatic, thesupplementary and corrective type is less and the supplementary type is the least; differentcontents of financial reports restatement will cause different degrees of market reaction too:the market reaction due to those involved profit decrease is the most severe negative, theones not involved profit changes is less and the ones involved profit increase is the least;different reasons for financial reports restatements will cause different degrees of marketreaction as well, the mandatory ones will lead a greater negative market reaction than thevoluntary ones.