An Empirical Study On Market Reaction To Financial Restatements In Chinese Listed Companies

Many Chinese and foreign scholars are concerned about the quality of accounting information in capital markets. Information is the blood of capital market,The level of accounting information to capital markets will affect the efficiency of resource allocation, but also largely reduce degree of information asymmetry between internal managers and outside investors,and also are the most important and direct basis for investment decision making. Therefore, the level of quality of accounting information reflects the overall capital market efficiency.In 2001, TCL companies use this new means of financial restatements, effectively reached inflated profits, and managed to escape being "Special Treated", which was reported in the year after two years. And in 2001, TCL Corporation Annual Report for 2000 was restated from earnings to the huge losses, the SFC has not been punished, but the restatement was identified as the accounting policies and estimates used improperly. the financial restatement of the capital market there are still many loopholes in the system and problems to be resolved, the specific definition of financial restatements is relatively confusing. A large number of economic scandals, such as managers use financial restatement for financial fraud, the major shareholder in-house news, financial restatements and other acts of delay for emptying, seriously damaged the immediate interests of the small investors, greatly destroy investors'confidence of accounting information of listed companies, increased the degree of information asymmetry between management and outside investors, inhibit the efficient allocation of capital markets.All along our scholars are more interested in research in the field of financial fraud, ignoring the phenomenon of financial restatements. The recent literature shows that financial restatements have become a new means of manipulating accounting earnings, and this means a very covert. Because of the current stock market is not sound legal system, financial restatements as a means to manipulate earnings of listed companies are subjected to appropriate punishing slightly. In addition, the degree of financial restatements also greatly harmed the interests of outside investors, resulting in inefficient allocation of market resources. A lot of evidence show that the phenomenon of financial restatements has greatly damaged the trust of investors and shareholders. In recent years territory of China the company restated financial statements of listed companies in Shanghai and Shenzhen accounted for 15% of the total, and most of the contents of financial restatements are related to the company's financial core index. In some extent, A lot of evidence reflect that the system of financial restatements is not rigorous and non-standard in China, which damaged the interests of outside investors, and exacerbated a crisis of confidence in capital markets. Management postpone the negative news, which manipulate the profits in a certain period of time. Audited restated financial information will lead to increased uncertainty and risk, while a sharp decline in trust. Although after the financial restatement it is expected to reduce the uncertainty of information, the company's past, present and future uncertainty of the other financial information is increasing, and even investors may question whether the company restated financial statements will happen. Because the financial statements are not reliable, so investors will realize that they are facing.greater capital allocation decisions.The original intention of the financial restatement is in order to provide more reliable accounting information for information users, which helps investors to change invest direction in time, thus make more scientific and rational decision.However, there is a sluggish between the report quoted the first day and the time of the financial restatement, which also caused some companies to manipulate profits, greatly reduce the degree of reliability of accounting information. In addition, the time interval has no specific provisions and limited requirements. When Listed companies released restated announcement, it is no need to release audit opinion, shown financial restatements is relatively flexible, when released restatement announcement considered by management to say. Moreover, there is no listed companies restated financial disclosure reports late penalty by the SFC almost. In China, the disclosure of the financial restatement announcement is bad news in the most cases, corporate management is willing to choose the right time to publish corrections or supplementary notice, in order to mitigate the impact of financial restatements on the stock market.February 15,2006, the Ministry of Finance issued a new accounting standard, which the "Accounting Standards for Enterprises No.28-Accounting policies, changes in accounting estimates and correction of accounting errors" made it clear the "retrospective restatement" concept. This is the first time to propose formally a "retrospective restatement" and also describe the operation in practice in accounting, accounting procedures and accounting treatment. This shows that China's accounting standards and regulatory laws and regulations are matching gradually,and financial restatements was established.In this paper, author choose A -share market listed companies restated financial statements as the research object, mainly used the event study method and multiple linear regression analysis method, studied the change of the relationship before and after the financial restatement in earnings, pershare, cash flow per share, respectively, as well as the relationship between cumulative excess return and the time lag. Financial restatements in order to answer to investors a greater degree of uncertainty in the future, will investors rely on restatement of cash flow indicators to assess the value of the company? Will Investors feel the restatement lack reliability of financial and no longer rely on accounting earnings information? And how the relationship in stock accumulative total return rate and the relationship between financial restatements delay?This paper is adopted "questions-analysis problem-problem solving" the traditional logic thinking, this paper is composed of five parts. The first part is the introduction. The paper studies research status, the research background, this paper structure arrangement and main innovation points and insufficiency, etc) are introduced in this paper. The second part is the literature review. This part is focus on a lot of literature and advance the existing literature research limitations also provide convenient for model building, variable selection and result discuss. This part reviews the development course of financial restatements system, puts forward the theory of which is the basis of the theory of paper has two main: principal-agent theory and mechanical hypothesis. On the basis of theoretical analysis, this paper puts forward three assumptions. The fourth part is empirical research section, mainly choose A-share market listed companies restated financial statements as the research object in 2008 to 2009, and five days before and after the restated as the research object of events window. Through the concrete data shows that China's capital market, financial restatement of earnings per share before and after accounting for stock and cash flow of excess yield different explanation of how each changes and the changes, also studies the financial restatements delay and share be-sue is accumulative total return rate, also is the connection between the listed companies in China financial restatements on short-term market reaction profound experience and research. The fifth part is the conclusion of this paper which summarized and puts forward corresponding policy suggestion and future research prospect. In the third and fourth part based on the empirical analysis to our country securities market, analyzes the status quo restatements report, summarizes the fourth part of data analysis, and the conclusion of regulating Chinese financial'restatements report behavior some constructive suggestion, mainly including the relevant law regulations, governance structure of a company, registered accountants audit system, based on the aspects of this study limitations, and puts forward the direction of future should continue to study.The empirical results show that in financial restatements period, the average abnormal return significant negative, explains the overall financial restatements phenomenon to investors is negative influence, this also verified that many domestic and foreign literatures consistent conclusion:financial restatements integral to investors to bring is negative effects; China's listed company financial restatements tend to disclose negative news. This is because of accounting standards on the accounting errors have clearly defined, and the cost of the financial statements of a significant correction of errors is relatively small and hardly any punishment, which unexpectedly sometimes become enterprise whitewash profit, a means to postpone the release; Financial stocks returns and restated the earnings correlativity degree is less than financial restatements restated before stock returns and financial per share the correlation of cash flow to a greater extent than financial restatements before. This shows financial restatements announcement released, cause investors to understanding enterprise financial data, financial restated in investment decision after investors do not easily, start seek manipulated index, such as cash flow indicator; The later listed enterprises for financial restatements issued, the greater the market react. Namely the later issued by financial restatements, market reaction time is larger.The main contribution of this artcle reflected in two aspects:firstly, the financial restatements phenomenon in our country is a common phenomenon, before financial restatements, investors are willing to believe the accounting earnings data, after financial restatements, cash flow data are more significant, the paper gives a clear conclusion:financial restatements before, accountancy earnings has strong explanatory; After financial restatements, cash flow has strong ability. At present our country in this domain no scholar in-depth study. Foreign despite literature involves the domain, because of our country special legal system, the conclusion is not suitable for China's capital market specific situation. this empirical research is a good supplement. And this paper gives a relatively complete analysis framework. Second, this paper use foreign advanced research method, using event study and multivariate linear regression analysis, before financial restatements, the investors very trust accountancy earnings data; But in financial restatements later, investors are more willing to believe that cash flow index. This indicates that the new published financial restatements report contains new information content and value, because investors cognition difference, investors will readjust on corporate value. This calls for the legislation of our country and related policy must pay attention, and it also provides a certain foundation for specific policy measures for the implementation of the theoryBecause by the constraints of references, data and own capacity, this article there are still many deficiencies. China's existing securities regulations there are many loopholes in the sample which can not escape this arbitrariness; and because of the lack of uniform financial reporting format, the nature of the financial restatement and delay finishing period are not uniform, which depend on subjective judgments of author's. This is undoubtedly affected to some extent the conclusions of this paper.