Is the decline in the information content of earnings following restatements temporary?

Prior research finds that the decline in the information content of earnings after restatement announcements is temporary and that earnings response coefficient (ERC), the proxy for the information content of earnings, bounces back after three quarters. We find that this temporary decline documented...

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Main Author: CHENG, Qiang
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Language:English
Published: Institutional Knowledge at Singapore Management University 2011
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Online Access:https://ink.library.smu.edu.sg/soa_research/1059
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spelling sg-smu-ink.soa_research-20582013-05-14T05:30:08Z Is the decline in the information content of earnings following restatements temporary? CHENG, Qiang Prior research finds that the decline in the information content of earnings after restatement announcements is temporary and that earnings response coefficient (ERC), the proxy for the information content of earnings, bounces back after three quarters. We find that this temporary decline documented in prior research is driven by two design choices: (1) the inclusion of both accounting irregularities and other restatements, and (2) the restriction of data availability for the two quarters immediately surrounding restatement announcements, which reduces the sample size by about half. After separately investigating accounting irregularities and other restatements and relaxing the data restriction, we find that accounting irregularity firms experience a significant decrease in ERC over a much longer period – close to three years after restatement announcements. In contrast, other restatement firms experience a decline in ERC only for one quarter after restatement announcements. 2011-09-01T07:00:00Z text https://ink.library.smu.edu.sg/soa_research/1059 Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Accounting
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Accounting
spellingShingle Accounting
CHENG, Qiang
Is the decline in the information content of earnings following restatements temporary?
description Prior research finds that the decline in the information content of earnings after restatement announcements is temporary and that earnings response coefficient (ERC), the proxy for the information content of earnings, bounces back after three quarters. We find that this temporary decline documented in prior research is driven by two design choices: (1) the inclusion of both accounting irregularities and other restatements, and (2) the restriction of data availability for the two quarters immediately surrounding restatement announcements, which reduces the sample size by about half. After separately investigating accounting irregularities and other restatements and relaxing the data restriction, we find that accounting irregularity firms experience a significant decrease in ERC over a much longer period – close to three years after restatement announcements. In contrast, other restatement firms experience a decline in ERC only for one quarter after restatement announcements.
format text
author CHENG, Qiang
author_facet CHENG, Qiang
author_sort CHENG, Qiang
title Is the decline in the information content of earnings following restatements temporary?
title_short Is the decline in the information content of earnings following restatements temporary?
title_full Is the decline in the information content of earnings following restatements temporary?
title_fullStr Is the decline in the information content of earnings following restatements temporary?
title_full_unstemmed Is the decline in the information content of earnings following restatements temporary?
title_sort is the decline in the information content of earnings following restatements temporary?
publisher Institutional Knowledge at Singapore Management University
publishDate 2011
url https://ink.library.smu.edu.sg/soa_research/1059
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