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Regulation FD, accounting restatements and transient institutional investors' trading behavior

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  • Li, Xu
  • Radhakrishnan, Suresh
  • Shin, Haeyoung
  • Zhang, Jin

Abstract

We examine the impact of Regulation Fair Disclosure (RFD) on transient institutional investors' abnormal trading behavior around accounting restatements. We find that while in the pre-RFD period, transient institutional investors exhibit abnormal selling of restating firms' stocks one quarter before the restatement is publicly announced, in the post-RFD period there is no such abnormal selling. Furthermore, we find that this phenomenon is driven by (a) firms with low analyst following (i.e., firms with poor information environment), (b) firms with high stock price reaction to earnings surprise (i.e., firms with high informativeness of earnings), (c) firms where the restatements' impact on earnings is high, and (d) firms with non-revenue related restatements.

Suggested Citation

  • Li, Xu & Radhakrishnan, Suresh & Shin, Haeyoung & Zhang, Jin, 2011. "Regulation FD, accounting restatements and transient institutional investors' trading behavior," Journal of Accounting and Public Policy, Elsevier, vol. 30(4), pages 298-326, July.
    • Handle: RePEc:eee:jappol:v:30:y:2011:i:4:p:298-326
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    Cited by:

    1. Chakrabarty, Bidisha & Seetharaman, Ananth & Wang, Weimin, 2014. "Institutional versus retail trades following financial restatements: The effect of Sarbanes-Oxley," Research in Accounting Regulation, Elsevier, vol. 26(1), pages 12-25.
    2. Albring, Susan & Huang, Shawn & Pereira, Raynolde & Xu, Xiaolu, 2020. "Disclosure and liquidity management: Evidence from regulation fair disclosure," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(3).
    3. Chen, Ching-Lung & Weng, Pei-Yu & Chien, Chu-Yang, 2018. "Qualified foreign institutional investor ownership deregulation and the restatement of financial reports --- empirical findings from Taiwan," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 465-485.

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