TY - JOUR
T1 - Discretionary disclosure and the market reaction to restatements
AU - Gordon, Elizabeth A.
AU - Henry, Elaine
AU - Peytcheva, Marietta
AU - Sun, Lili
PY - 2013/7
Y1 - 2013/7
N2 - This paper presents evidence that management's disclosure choices related to a restatement are associated with the market reaction at the time the restatement is announced. The two aspects of pre-restatement disclosure choice we examine are the amount of disclosure, hypothesized to reduce information asymmetries, and the tone of disclosure, hypothesized to exacerbate the effect of subsequently-disconfirmed market expectations. Our results provide support for both hypothesized effects, controlling for characteristics that previous research has shown to affect market reaction to restatements-financial attributes of restatements, and concurrent disclosure choices such as prominence of the announcement. We also find that concurrent and prior disclosure characteristics have equivalent and complementary power in explaining market reaction to restatements, while interactive effects indicate that pre-restatement disclosure choices reduce the marginal market impact of concurrent disclosure characteristics.
AB - This paper presents evidence that management's disclosure choices related to a restatement are associated with the market reaction at the time the restatement is announced. The two aspects of pre-restatement disclosure choice we examine are the amount of disclosure, hypothesized to reduce information asymmetries, and the tone of disclosure, hypothesized to exacerbate the effect of subsequently-disconfirmed market expectations. Our results provide support for both hypothesized effects, controlling for characteristics that previous research has shown to affect market reaction to restatements-financial attributes of restatements, and concurrent disclosure choices such as prominence of the announcement. We also find that concurrent and prior disclosure characteristics have equivalent and complementary power in explaining market reaction to restatements, while interactive effects indicate that pre-restatement disclosure choices reduce the marginal market impact of concurrent disclosure characteristics.
KW - Discretionary disclosure
KW - Fraud
KW - Restatement
KW - Tone
UR - http://www.scopus.com/inward/record.url?scp=84879287755&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84879287755&partnerID=8YFLogxK
U2 - 10.1007/s11156-012-0301-4
DO - 10.1007/s11156-012-0301-4
M3 - Article
AN - SCOPUS:84879287755
SN - 0924-865X
VL - 41
SP - 75
EP - 110
JO - Review of Quantitative Finance and Accounting
JF - Review of Quantitative Finance and Accounting
IS - 1
ER -