Journal article
Informed Trading and the Market Reaction to Accounting Restatements
The Accounting review, Vol.86(5), pp.1519-1547
09/01/2011
DOI: 10.2308/accr-10093
Abstract
ABSTRACT
We examine how informed trading activities affect the market reaction to accounting restatements. We find significantly less negative reactions to accounting restatements when managers are net purchasers of stock before the restatement, and significantly more negative market reactions when managers are net sellers. Similar patterns characterize corporate trading, where prior stock repurchases dampen negative reactions and prior equity issuances increase negative reactions to the restatement. We address the possibility of reverse causality in which informed trades are undertaken because of the expected market reaction by examining the difference between disclosed and non-disclosed trades, finding that the market reaction is concentrated in the disclosed trades. Our results are incremental to general return patterns associated with insider trading and corporate equity transactions, and hold after controlling for other determinants of the market reaction to restatements. Taken together, these findings suggest that investors use informed trading activities to help interpret and price accounting restatements.
JEL Classifications: M41, M42.
Data Availability: Data are publicly available from the sources identified in the study.
Details
- Title: Subtitle
- Informed Trading and the Market Reaction to Accounting Restatements
- Creators
- Brad A Badertscher - University of Notre DameS. Paul Hribar - University of IowaNicole Thorne Jenkins - Vanderbilt University
- Resource Type
- Journal article
- Publication Details
- The Accounting review, Vol.86(5), pp.1519-1547
- DOI
- 10.2308/accr-10093
- ISSN
- 0001-4826
- eISSN
- 1558-7967
- Language
- English
- Date published
- 09/01/2011
- Academic Unit
- Accounting
- Record Identifier
- 9984380498902771
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