Title: FINANCIAL RESTATEMENT: ITS IMPACT ON MARKET REACTION

Authors: Desy ISMAH Anggraini

Affiliations: Master of Accounting Program, Faculty of Economics and Business, Universitas Airlangga , Surabaya, Indonesia

Publisher: Universitas Airlangga

Abstract

The purpose of this study is to demonstrate market reactions to financial restatements, their reactions before and after financial restatements, and to demonstrate differences in reactions when financial restatements are driven by different reasons. The study used companies that conducted financial restatements between 2012 and 2017, using the event study method and a five-day event window before and after the financial restatement announcement. The study used the GAO (2002) classification of financial restatement causes and used abnormal returns as a proxy for measuring market reaction. The study used the market-adjusted model method to measure expected returns. The results show that a small percentage of investors consider information about the causes of financial restatements to be important information. However, most investors believe that information about the causes of financial restatements is not important information that can decrease or increase company value and therefore cannot influence market decisions to invest. The market does not react to financial restatement information, so there is no effect on abnormal returns, which are used as a proxy for measuring market reaction. This is evidenced by the absence of reaction before and after the financial restatement announcement.

Keywords: abnormal return, financial restatement, market reaction

Sources: http://repository.unair.ac.id/80357/