Research On Stock Market Reaction From Annual Report Restatement Of The Listed Companies

In recent years, the restatement on annual report frequently arose. Annual report restatement means that the listed companies make correction or supplement to the financial statement they have released. This phenomenon usually indicates that there are errors or omissions in the information previously published, and thus the investors may doubt the information quality even the restating firm itself, which may affect the company's value in the capital market.Using a sample of 474 supplement and correction announcements to annual reports of Chinese A-share listed companies between 2007 and 2009, this paper conducts an empirical research on the stock market reaction from annual report restatement of the listed companies. The aim is to discuss about the stock-return behavior before and after the issuance of the restatement in the short term and how various types of restatements contribute to the abnormal returns.Firstly, this paper summarizes related literatures, especially the documents about market reaction from financial statement restatement, which are the basis of the research. Secondly, this paper designs this research:establishing theoretical model, making hypothesis and choosing samples. Finally, based on the samples, this paper uses "Event Study" to calculate restating firms'cumulative abnormal return (CAR) in the announcement period specified, and then conducts an empirical research with One-Sample T Test and Multi-Variable Linear Regression.The results show that the whole annual report restatement of the listed companies causes some negative impact on firms'value, but different kinds of restatements result in diverse stock market reactions that may be related with the investors'different focuses or judgments on restatements. In these samples, correction announcements, accounting-induced announcements and revenue or expense restatements cause obvious negative impact, but supplement announcements or supplement and correction announcements have some obverse effect. Meanwhile, the results also prove that the efficiency of capital market between 2008 and 2009 is higher. The value relevance of financial restatements suggests that it's imperative to further standardize and guide the restatement behavior of Chinese listed companies and improve information disclosure quality in order to protect the interests of investors and insure the steady development of capital market in China.