First Faculty Advisor
Second Faculty Advisor
stock return; market reactions; restatement
CC 4.0 BY-NC-ND
This study analyzes the effect of restatement announcements in 8-K reports on stock returns. Using a sample of 274 financial misstatement announcement observations from 8-K reports, we find an average stock return of -10.38% in the quarter following the filing. Additionally, more pronounced negative returns are attributed to the misstatement of operating cash flow, cost of goods sold, and operating expenses. The results imply that the market reacts negatively to non-reliance on financial statements, and particularly the restatements of accounts that are related to the primary operations of the firm.