Please use this identifier to cite or link to this item:
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.
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

Citations 50

Updated on Jan 21, 2023

Web of ScienceTM
Citations 50

Updated on Jan 17, 2023

Page view(s)

Updated on Jan 27, 2023

Google ScholarTM




Items in DR-NTU are protected by copyright, with all rights reserved, unless otherwise indicated.