SHORT TERM MARKET REACTION TO EARNINGS RESTATEMENTS: VALUE STOCKS VIS-À-VIS GLAMOUR STOCKS

Various hypotheses have been proposed to explain why the return differential between value stocks and glamour stocks persists so long. It is hypothesized that prices of value stocks drop more than those of glamour stocks at the announcement of earnings restatements, if other things being equal. Empirical results of this study show that there are significantly negative Cumulative Abnormal Returns (CAR) over (-1, +1) window and (-5, +5) window surrounding the announcement of earnings restatements. And the short-term impact of earnings restatement announcements on stock prices seems to fade away by the day 1 after the announcement. The results also suggest that CAR do not vary with value/glamour identifiers such as BM, CP, and GS. In order words, CAR of value firms are not significantly different from those of glamour firms around the announcement of earnings restatements.