We would like to thank the referee, Gary Monroe and Robert Faff (the editors), Joseph Golec, John Harding, Michael Willenborg, Assaf Eisdorfer, Mine Ertugrul, Neeraj Gupta, Jim Hilliard and Bruce Bradford for helpful comments.
Equity and debt issuance by firms violating GAAP
Article first published online: 12 SEP 2011
© 2011 The Authors. Accounting and Finance © 2011 AFAANZ
Accounting & Finance
Volume 52, Issue Supplement s1, pages 77–108, October 2012
How to Cite
Bardos, K. S. and Zaiats, N. (2012), Equity and debt issuance by firms violating GAAP. Accounting & Finance, 52: 77–108. doi: 10.1111/j.1467-629X.2011.00443.x
- Issue published online: 5 OCT 2012
- Article first published online: 12 SEP 2011
- Received 30 June 2010; accepted 11 August 2011 by Gary Monroe (Deputy Editor).
- Corporate Misreporting;
- Financial Statement Restatements;
- Security Issuance
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.