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Does the Market Know? Evidence from Managerial (Non-) Reporting of Financial Stealth Restatements

Hogan, Brian
http://rave.ohiolink.edu/etdc/view?acc_num=case1220044485

Abstract Details

2009, Doctor of Philosophy, Case Western Reserve University, Accounting.
This dissertation expands upon the investor and restatement literatures by examining the market impact, if any, of stealth restatements by firms. Stealth restatements occur when firms restate prior periods without both amending the past affected reports and filing a Form 8-K Item 4.02, disclosing the restatement as mandated by the Securities and Exchange Commission (SEC). Utilizing a disclosure level index for firm restatement reporting, I find that abnormal returns are significantly negative over short and longer term time frames for firms with Form 8-K (high disclosure) negative large and small impact restatements. These results are similar to other abnormal return restatement studies (Palmrose et al. 2004). Results for positive impact large and small restatements for highly transparent restatements are mixed. I find that both large and small positive high disclosure restatements have an insignificant relationship with abnormal returns in the short term, but these relationships are significantly negative in the longer time period studied. Firms issuing stealth restatements (low disclosure) appear to avoid any negative market consequences over the short and longer time periods. I also find that the market does negatively penalize firms that do not provide the financial amount in their restatement disclosures. This paper also examines the reactions of different market participants to the various disclosure levels of restatements. Utilizing the classification system introduced in Bushee (1998), I find that transient investors react to stealth restatements by reducing their holdings in the quarter prior to the restatement announcement. The other investor categories, dedicated and quasi-indexing, both increase their holdings in the pre-restatement quarter, but the relationship is statistically significant for only the quasi-indexing group. As these stealth disclosures are not highly publicized by management, these results suggest that transient investors, in the post Regulation FD timeframe, may possess superior information gathering abilities, as opposed to the notion that they may be privy to firm private information.
Julia Grant, PhD (Committee Chair)
Timothy Fogarty, PhD (Committee Member)
Robert Bricker, PhD (Committee Member)
Eric Bettinger, PhD (Committee Member)
113 p.
Accounting
Restatements; stealth; market reaction; institutional investors; abnormal returns

Recommended Citations

Citations

  • Hogan, B. (2009). Does the Market Know? Evidence from Managerial (Non-) Reporting of Financial Stealth Restatements [Doctoral dissertation, Case Western Reserve University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=case1220044485

    APA Style (7th edition)

  • Hogan, Brian. Does the Market Know? Evidence from Managerial (Non-) Reporting of Financial Stealth Restatements. 2009. Case Western Reserve University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=case1220044485.

    MLA Style (8th edition)

  • Hogan, Brian. "Does the Market Know? Evidence from Managerial (Non-) Reporting of Financial Stealth Restatements." Doctoral dissertation, Case Western Reserve University, 2009. http://rave.ohiolink.edu/etdc/view?acc_num=case1220044485

    Chicago Manual of Style (17th edition)

case1220044485
636
© 2008, all rights reserved.
This open access ETD is published by Case Western Reserve University School of Graduate Studies and OhioLINK.