Risk dynamics around restatement announcements

Katsiaryna Salavei Bardos (), Brandon N. Cline () and Gregory Koutmos ()
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Katsiaryna Salavei Bardos: Fairfield University
Brandon N. Cline: Mississippi State University
Gregory Koutmos: Fairfield University

Review of Quantitative Finance and Accounting, 2020, vol. 54, issue 4, No 5, 1279-1313

Abstract: Abstract We investigate the dynamic nature and temporal daily changes in systematic (beta), as well as idiosyncratic and total risk around restatement announcements. We find that beta increases by 51% at restatement announcement but it reverts to the pre-restatement level within 1 month. However, idiosyncratic risk experiences a longer-term increase of approximately 20% following a restatement. Cross-sectional analysis shows that the results are more pronounced with restatements associated with irregularity. Overall, our findings suggest that risk components are time-varying with the systematic component rapidly mean-reverting but the idiosyncratic component experiencing a longer-term increase.

Keywords: Disclosure; Corporate misreporting; Financial statement restatements; Beta; Idiosyncratic risk; EGARCH; Cost of capital (search for similar items in EconPapers)
JEL-codes: G14 G30 M41 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:54:y:2020:i:4:d:10.1007_s11156-019-00825-4

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DOI: 10.1007/s11156-019-00825-4

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