Risk Dynamics Around Restatement Announcements

Katsiaryna Salavei Bardos; Brandon N Kline; Gregory Koutmos

doi:10.1007/s11156-019-00825-4

Risk Dynamics Around Restatement Announcements

Katsiaryna Salavei Bardos, Brandon N Kline, Gregory Koutmos

Fairfield University

Research output: Contribution to journal › Article › peer-review

Abstract

We investigate the dynamic nature and temporal daily changes in systematic (beta), as well as idiosyncratic and total risk around restatement announcements. We find that beta increases by 51% at restatement announcement but it reverts to the pre-restatement level within 1 month. However, idiosyncratic risk experiences a longer-term increase of approximately 20% following a restatement. Cross-sectional analysis shows that the results are more pronounced with restatements associated with irregularity. Overall, our findings suggest that risk components are time-varying with the systematic component rapidly mean-reverting but the idiosyncratic component experiencing a longer-term increase.

Original language	American English
Journal	Review of Quantitative Finance and Accounting
DOIs	https://doi.org/10.1007/s11156-019-00825-4
State	Published - May 1 2019

Keywords

disclosure
corporate misreporting
financial statement restatements
beta
idiosyncratic risk
EGARCH
cost of capital

Disciplines

Business

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Risk Dynamics Around Restatement AnnouncementsFinal published version, 1.59 MBLicense: CC BY
Risk Dynamics Around Restatement AnnouncementsFinal published version, 1.59 MBLicense: CC BY

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Cite this

@article{752d87f234014c819750a5b00daa10bb,

title = "Risk Dynamics Around Restatement Announcements",

abstract = " We investigate the dynamic nature and temporal daily changes in systematic (beta), as well as idiosyncratic and total risk around restatement announcements. We find that beta increases by 51\% at restatement announcement but it reverts to the pre-restatement level within 1 month. However, idiosyncratic risk experiences a longer-term increase of approximately 20\% following a restatement. Cross-sectional analysis shows that the results are more pronounced with restatements associated with irregularity. Overall, our findings suggest that risk components are time-varying with the systematic component rapidly mean-reverting but the idiosyncratic component experiencing a longer-term increase.",

keywords = "disclosure, corporate misreporting, financial statement restatements, beta, idiosyncratic risk, EGARCH, cost of capital",

author = "\{Salavei Bardos\}, Katsiaryna and Kline, \{Brandon N\} and Gregory Koutmos",

year = "2019",

month = may,

day = "1",

doi = "10.1007/s11156-019-00825-4",

language = "American English",

journal = "Review of Quantitative Finance and Accounting",

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T1 - Risk Dynamics Around Restatement Announcements

AU - Salavei Bardos, Katsiaryna

AU - Kline, Brandon N

AU - Koutmos, Gregory

PY - 2019/5/1

Y1 - 2019/5/1

N2 - We investigate the dynamic nature and temporal daily changes in systematic (beta), as well as idiosyncratic and total risk around restatement announcements. We find that beta increases by 51% at restatement announcement but it reverts to the pre-restatement level within 1 month. However, idiosyncratic risk experiences a longer-term increase of approximately 20% following a restatement. Cross-sectional analysis shows that the results are more pronounced with restatements associated with irregularity. Overall, our findings suggest that risk components are time-varying with the systematic component rapidly mean-reverting but the idiosyncratic component experiencing a longer-term increase.

AB - We investigate the dynamic nature and temporal daily changes in systematic (beta), as well as idiosyncratic and total risk around restatement announcements. We find that beta increases by 51% at restatement announcement but it reverts to the pre-restatement level within 1 month. However, idiosyncratic risk experiences a longer-term increase of approximately 20% following a restatement. Cross-sectional analysis shows that the results are more pronounced with restatements associated with irregularity. Overall, our findings suggest that risk components are time-varying with the systematic component rapidly mean-reverting but the idiosyncratic component experiencing a longer-term increase.

KW - disclosure

KW - corporate misreporting

KW - financial statement restatements

KW - beta

KW - idiosyncratic risk

KW - EGARCH

KW - cost of capital

UR - https://digitalcommons.fairfield.edu/business-facultypubs/235

U2 - 10.1007/s11156-019-00825-4

DO - 10.1007/s11156-019-00825-4

M3 - Article

JO - Review of Quantitative Finance and Accounting

JF - Review of Quantitative Finance and Accounting

ER -

Risk Dynamics Around Restatement Announcements

Abstract

Keywords

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