Article
Litigation Risk and Market Reaction to Financial Statement Restatements
Journal of Financial Research
Document Type
Article
Article Version
Post-print
Publication Date
3-19-2013
Disciplines
Abstract
A large negative stock price reaction to a restatement announcement could imply a significant accounting error, or one made by a firm with a high probability of being sued. We investigate the extent to which market reactions to restatement announcements are explained by litigation risk. We model the simultaneous relation between restatement announcement abnormal returns and litigation risk and find that about half of the −9.2% average restatement announcement effect is due to expected litigation costs. We also find that the significance of the accounting error only affects abnormal return indirectly because it increases the probability of being sued.
Published Citation
Bardos, Katsiaryna Salavei, Joseph Golec, and John P. Harding. "Litigation risk and market reaction to restatements." Journal of Financial Research 36, no. 1 (2013): 19-42. https://doi.org/10.1111/j.1475-6803.2013.12001.x
DOI
10.1111/j.1475-6803.2013.12001.x
Peer Reviewed
Citation Information
Katsiaryna Salavei Bardos, Joseph H. Golec and John P. Harding. "Litigation Risk and Market Reaction to Financial Statement Restatements" Journal of Financial Research Vol. 36 Iss. 1 (2013) Available at: http://works.bepress.com/katsiaryna_salaveibardos/12/
© 2013 The Southern Finance Association and the Southwestern Finance Association
This is the peer reviewed version of the following article: Bardos, Katsiaryna Salavei, Joseph Golec, and John P. Harding. "Litigation risk and market reaction to restatements." Journal of Financial Research 36, no. 1 (2013): 19-42, which has been published in final form at https://doi.org/10.1111/j.1475-6803.2013.12001.x. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.