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We examine security issuance in restated periods by firms that misreport financial statements and find that only a small per cent of such firms issues securities in the restated period. Investors are misled by mistakes made by firms issuing equity more so than other restating firms at the initial announcement of misreported earnings, but are not misled by mistakes made by debt-issuing firms. Equity-issuing firms that manage earnings to beat analyst expectations experience abnormally high returns in the restated period prior to security issuance. Firms that restated more reports and have higher pre-mistake returns are more likely to issue equity. High leverage, firm size and number of restated periods are positively associated with the likelihood of debt issuance by restating firms.


Copyright 2011 Wiley-Blackwell

This is a pre-print of an article accepted for publication in Accounting and Finance. The definitive version is available at

Publication Title

Accounting and Finance

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Bardos, Katsiaryna Salevei, and Nataliya Zaiats. 2011. Equity and debt issuance by firms violating GAAP.