We investigate the dynamic nature and temporal daily changes in systematic (beta), as well as idiosyncratic and total risk around restatement announcements. We find that beta increases by 51% at restatement announcement but it reverts to the pre-restatement level within 1 month. However, idiosyncratic risk experiences a longer-term increase of approximately 20% following a restatement. Cross-sectional analysis shows that the results are more pronounced with restatements associated with irregularity. Overall, our findings suggest that risk components are time-varying with the systematic component rapidly mean-reverting but the idiosyncratic component experiencing a longer-term increase.
Review of Quantitative Finance and Accounting
Salavei Bardos, Katsiaryna; Kline, Brandon N.; and Koutmos, Gregory, "Risk Dynamics Around Restatement Announcements" (2019). Business Faculty Publications. 235.
Bardos, Katsiaryna Salavei, Brandon N. Cline, and Gregory Koutmos. "Risk dynamics around restatement announcements." Review of Quantitative Finance and Accounting (2019): 1-35. https://doi.org/10.1007/s11156-019-00825-4
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