Please use this identifier to cite or link to this item: https://hdl.handle.net/10356/140333
Title: Investor reactions to restatements conditional on disclosure of internal control weaknesses
Authors: Li, Yiwen
Park, You-il
Wynn, Jinyoung
Keywords: Business::Accounting
Issue Date: 2018
Source: Li, Y., Park, Y., & Wynn, J. (2018). Investor reactions to restatements conditional on disclosure of internal control weaknesses. Journal of Applied Accounting Research, 19(3), 423-439. doi:10.1108/jaar-10-2017-0107
Journal: Journal of Applied Accounting Research
Abstract: Purpose: The purpose of this paper is to investigate investor reactions to financial restatements conditional on disclosures of internal control weaknesses under Section 404 of the Sarbanes-Oxley Act. Design/methodology/approach: The research uses cumulative abnormal stock returns (CARs) as a proxy for investor reactions. Restatements and internal control reports are available on audit analytics. Multivariate regression analyses were used for testing. Findings: Using a sample of restating firms whose original misstatements are linked to underlying internal control weaknesses, the research finds that cumulative abnormal returns for firms disclosing internal control weaknesses in a timely manner is negative in a three-day window around the restatement announcements. The finding indicates that restatements with early disclosure of internal control weaknesses provide more persuasive evidence of the ineffectiveness of a firm’s internal control over financial reporting, rather than early disclosure lowering the information asymmetry between a firm and investors. Research limitations/implications: This study employs CARs to examine the market reaction to restatements conditional on disclosure of internal control weaknesses. Practical implications: Further study on reactions by creditors who have access to private information on firms could extend the implications of the finding. Originality/value: The study contributes to the existing research by documenting that early disclosure of material weaknesses in internal control affects investors’ reactions to financial restatements.
URI: https://hdl.handle.net/10356/140333
ISSN: 0967-5426
DOI: 10.1108/JAAR-10-2017-0107
Rights: © 2018 Emerald Publishing Limited. All rights reserved.
Fulltext Permission: none
Fulltext Availability: No Fulltext
Appears in Collections:NBS Journal Articles

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