Market reactions to financial restatements - evidence from Chinese stock market

The financial statements of a listed firm disclose the company's financial position, operating results and cash flow information, which is an important means for investors to analyze the firm. But in recent years, financial restatements are becoming frequent. Basing on 88 Shanghai and Shenzhen A-share listed firms, which announced annual financial reports restatements during 2006-2008 periods, this paper tests the share price within a short time window changes before and after the restatements announcement through event study. The results show that the financial restatements have a significant negative impact on stock prices within a short time window, which indicating that the market can capture the new information released by restatements announcement.