The Study Of Earning Report’s Information Content After Financial Restatement

The modern capital market has the characteristics of information asymmetry, it makes investors know little about the company’s internal situation. Therefore, the information transferred to the inventors become very important. As the main way of showing companies’operating situation, financial report receives great concern by inventors. At the same time, the reliability and reality of financial report information has become the important basis of investment decisions. The low quality and unreliability of financial reporting will heavily discourage investors’ confidence. However, in recent years, it’s common to see some events discouraged investors’confidence and the frequency of financial restatements is the most typical example. Financial restatement is the process of correcting mistaken information which has been announced previously. In our country, the most common form of financial restatement is correction notice. Recently, the number of correction notice issued by a listed company is rising significantly in our country. There are 254 cases in 2009 and the number soared to 774 in 2013. It’s observed that the problem of financial restatements is serious in our country and this situation should be caused widespread concern.Existing researches in our country pay more attention to short-term market negative reaction around the day financial restatement announced, but the negative economic consequences caused by financial restatements are not limited to the share price volatility around restatement announced. The correction notice means previously announced financial information has some problem, it pass signal to investors that the information disclosed by the company has low quality. After reception the signal, investors’trust in the restatement company will reduced. As earning is the most concerned index of investors, the correct of earning by the listed company will cause the bigger shock to investors’ confidence. The changes of the information content of earning announcement after restatement will tell whether investors’confidence of the restatement listed company has destroyed.To study the effects of financial restatements of investor confidence, in this paper, the existing research both at home and abroad are reviewed in this paper. The paper also elaborated the system of the relevant regulations in our country and put forward hypotheses combining the theory research. Further, select earning restatement samples during 2004-2013 to conduct empirical research, interpret and analyze the research combined with the test results. Finally, the paper summarizes the research results, points out the limitations of the article and the direction of further research in the future.In empirical research part, this paper search samples which announce earning correction notice from 2004-2013 and 294 samples has been found through Cninfo. Next step, choose Wilson (2008) ERC model to verify the change of earning information content after earnings restatement. Empirical regression results show that the ERC decreased after the restatement, namely the information content decreased after the restatement. It suggests that investors lose heart of the financial report published by company conducted earning restatement. In this paper, further research is about how different types of earning restatement effect on investors’ confidence. First, divide all samples into two groups according to the timeliness and regress with Bootstrap model to test the differences between two coefficients. The results show that significant difference exists between two groups decrease degree ERC, less timeliness group decrease more. It means that investors take greater degree of antipathy to correction not in time. Next step, this article divided group according to the adjustment direction of earning, the results show that the earning decrease correction can bring a bigger blow to confidence.The result of this study can give a warning to listed companies. Financial restatements cause investors losing trust to earning information and drop confidence in the restatement company. Listed companies will take action to improve the quality of financial reporting in order to prevent errors which lead investors to lose faith in the company for a long time. In addition, the financial restatement is a hot topic in recent years, as well as a serious problem which related functional departments need to strengthen supervision. The conclusion of this paper provides a theoretical basis to regulation implement and policy making.