Stock market reaction and adjustment speed to multiple announcements of accounting restatements

This paper investigates how investors react to multiple restatement announcements and how rapidly they adjust to the information content of the restatement when firms announce the restatement more frequently and the time lag from the prior announcement becomes lengthier. For our own purposes of analysis, overall investors are segmented into two groups: those responding positively and negatively to restatements. We find that investors making a positive initial response to restatements become less favorable to subsequent restatements, while those making a negative initial response become less negative to subsequent restatements. The restatement with a shorter (longer) time lag from the prior restatement is taken favorably (unfavorably) by both groups of investors alike. We also find evidence that investors responding positively to restatements tend to delay moderately the speed at which they adjust to information contained in the restatement after the restatement announcement, and the delay becomes lengthier as restatements are more frequently announced. In contrast, investors responding negatively tend to adjust more rapidly in the post-announcement period with an increasing number of restatements. Both groups of investors consistently adjust more quickly (more slowly) to the restatement with a shorter (longer) lag from the prior announcement.