A Study On The Intra-industry Information Transfer Effects Of Financial Restatement

Nowadays, many financial fraud events happened, such as Enron and Yingguangxia in2001, Kelon in2004, Edmond Health Branch(2012) and Han purple(2013) and so on. It’s easily for us to find that all of them use the financial restatements as converters to make their operation results look more attractive, which makes investors and regulators feel deeply deplored. Financial reports provide the company’s capital structure, results of operation and the ability of development for the reports users. With the purpose of providing more comprehensive and accurate financial informations to help investors making rational investment decisons, financial restatement intend to timely correct the errors and add the ommissions. As capital market blood, accounting information reflects the quality of the capital market and operational efficiency of resource configuration. Labixiaoxin was suspected fictional performance in March,2014, although this has not been confirmed,the stock price reached the lowest that day. We can learn from this event that any information could impact on the capital market. Considering the lack of strict financial restatement related systems in China, and listed companies misuse the function of it and manipulate earnings in order to achieve their own purpose, which seriously interferes the effective information communication in the capital market and causes big loss.Reviewing and sorting the relevant literature, scholars focus on exploring the causes and consequences of financial restatements, and mainly use specification. As company’s important vent, financial restatement can transfer information in the capital market, and it’s a concrete manifestation of asymmetric information. This paper choosing the listed companies which release the temporary announcements of accounting errors from the year2006to2012as the research samples, based on the theories of Efficient Market Hypothesis, Principal Agent Theory and Signal Transfer Theory, besides, using the methods of Event Study and Multiple Regressions,to analyze the market reactions and information transfer effects of financial restatement. The research confirmed that:(1)During the announcement day period, the overall price for the market reaction is negative and down to the lowest in the announcement day, which indicate that the financial restatement actions of listed companies do has a negative impact and will lead to the fluctuation of stock price and the decline in the value of the companies.(2)According to the classifications, different types of financial restatements cause different market reactions. Compared to the non-profit financial companies, the financial restatement involving core profit will cause more significant market reaction; compared to the voluntarily initiate the financial restatement, initiated by regulatory authorities will be more significant.(3)The overall price of the companies which do not have the financial restatements also show downside from the fourth day after the restatement, which indicate that restatement has a negative impact on the industry as well, it’s a contagion effect.(4)Based on the analysis, we found that the main effect factors of the information industry transfer are core profit related restatement, the average CAR, the chairman of the company change, the ownership concentration, the size of the boards of directors and the establishment of Committee. The proportion of independent directors does not have much relation with the market reaction.According to the results of theoretical analysis and empirical research, based on the system, corporate governance structure and the regulatory perspective, the paper put forwards some relevant policy suggestions and prospects.(1)Perfect the accounting system of China.(2)To improve the independent director of our meeting system, by the establish an independent system of board of directors appointed by the three-party, in order to improve the independence. The directors should also perfect their own quality and knowledge, responsible for the company.(3)The auditors should strengthen their own occupation ethics, professional quality and occupation quality.(4)The government supervision departments at all levels shall strengthen the management and supervision of financial restatements of the listed Corporation, at the same time to strictly audit listing Corporation released each year for financial reporting, beforehand can control to reduce the financial restatement behavior.