The Effect Of Financial Restatement Of Listed Companies On The Enterprise Market Value

Restatement of financial report is the behavior of restatement on annual report, in a way of supplement or amendment. Recent years, with the rapid development of Chinese securities market, financial restatements appear frequently. From statistical data, about15%of the listed companies publish financial restatement each year, and it is expected to escalate. For a listed company, financial report is one important tool for investors to obtain the financial information and business performance. Therefore, the phenomenon of frequent restatement of financial reports tends to reduce investment confidence and causes investors to re-evaluate the market value of the company. Meanwhile, this has led to a widespread attention among domestic and overseas scholars. From the perspective of market value of the company, it is necessary to analyze the different influence on the market value caused by financial restatement of listed company, which has both theoretical meaning and practical significance.This thesis first reviews and summarizes relevant literature on financial restatement and market value of the company. Based on the literature review, along with the theoretical foundation including efficient market hypothesis (EMH), and signaling models, this thesis then analyzes the possible influence on the market value caused by financial restatement of listed company. After that, the thesis points out the theoretical assumption, and establishes multiple regression model. To test the theoretical assumption, this thesis adopts the sample of61listed companies in Shanghai and Shenzhen A share market which has published financial restatement from2005to2010and carried out several steps. Specifically, this thesis first analyzes this sample from two aspects, industry classification and the frequency of restatement of listed companies descriptively. After that, this thesis uses a combination of single-variable and multi-variable test methods to study the sample from different aspects, including initiator of financial restatement of listed company, whether financial restatement relates to core index in accounting, the adjustment of financial surplus, the correlation between the frequency of financial restatement and the market value of the listed company.As is shown from the analysis, the market value of listed companies declines during the time period before and after restatement announcement, but the impact is not significant. This indicates that financial restatement announcement can more or less decrease the market value of the listed company. Also, the influence on the market value of listed companies caused by the frequency of financial restatement and the adjustment direction of financial surplus is negative, and the impacts are significant. This indicates that Chinese stock market could recognize the frequency of financial restatement effectively. Moreover, the regression result shows that the market value of listed companies relates positively to the scale of the company, and earnings per share (EPS). This indicates that the companies with larger scale and higher earning power are more likely to demonstrate better market performance.