Markets' reaction to financial restatements of the Top 40 JSE listed companies.
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Date
2022
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Abstract
There has been a rapid growth of financial restatements. This concerns the investors
about the integrity and reliability of the entity’s financial reporting environment and
restatements negatively affecting market reactions. Numerous listed companies are
restating their financial statements due to inaccurate or misleading information in the
previously published financial reports. JSE requires listed firms to correct and amend
incomplete or misleading information. A survey on the market reaction around
announcements of financial restatements of JSE companies has been a concern and
interest to investors, management, and any other concerned parties. As a result, the
aim was to examine the causes of financial restatements of the listed top 40
companies in South Africa and establish the markets’ reaction. The study involved the
top 40 companies listed on the JSE from 2007 to 2019. The study collected secondary
data and the population of thirty-two events was pulled from the JSE SENS. A sample
size equaled the entire population of thirty-two events. The window period included 10
days before the announcements, the day of the announcement, and 10 days after the
announcement. The IBM SPSS Statistics 27, the statistics software, was used to
analyse data. The results indicated a total of thirty-two restatements over a period of
thirteen years. The year 2019 was the period that reported the most restatements.
Causes of restatements were found to be accounting errors, adoption of the new
standard, accounting irregularities, and change in accounting policy. A substantial
number of restatements were due to accounting errors. A majority of companies
experienced growth in share price on the 10th day after the announcement.
Nonetheless, when all days within the window period were included in the analyses,
the overall calculation indicated that companies experienced an average decline of -
7.55% in the share price after the announcement. The empirical findings confirm that
markets react negatively to the restatements since a significant number of companies
exhibited an average decline in share price after the announcement.
Description
Masters Degree. University of KwaZulu-Natal, Durban.