Stock Market Reaction For The Accounting Errors Empirical Research

Along with the rapid development of Chinese Stock Market, there are more and more discussions on accounting restatement announcement. However, there are few empirical researches about the relationship between accounting restatement and stock market reaction. This research aimed to discuss about the stock-return behavior before and after the issuance of accounting restatement in the short run. Another problem discussed in the research was how the quantitative information and qualitative characteristics of restatements contributes to the short-term abnormal returns.Firstly, this work reviewed related literatures, and brought forward the model in and hypotheses. Secondly, briefly introduced and compared the rule and institutional system domestically and abroad. Thirdly, using hand-collected data from between 2005-2006,I completed the empirical work. The main conclusion is as follow.1. This research demonstrated a strongly negative short-term market reaction before and upon the issuance of accounting restatement. After the announcement of the restatement, there will be a downward pattern in a very short time. However, this negative reaction is not significant, and along with the time went by, this reaction will be mitigated quickly and even disappears.2. Some kinds of information in the restatement, (e.g. the reasons referring revenue recognition, the reasons referring tax, the date for the event mentioned in the restatement, and the initiator of the restatement) carry significant explanatory power for the short-term market response, while others (e.g. reasons referring cost and expense treatment, reasons referring long-term gain or loss, the direction of the restatement and the amount of the restatement) are not. Additionally, the market's recognition for the information occurs in different stages of the announcement.3. Firm size and information on financial statement will affect the abnormal stock-return in the 7 day event-window upon the restatement. The firm size is positively related to the abnormal return. On the occasion that the accounting restatement is issued in the same day with the financial statement, if the adjusted net earning shown in the statement is increased, then the abnormal return will be strongly larger than the decreasing case.