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- Title
Stock Market Adjustment to Earnings Announcement in the Presence of Accounting Irregularity Allegations.
- Authors
Kyung-Chun Mun; Fleak, Sandra K.; Morgan, George Emir
- Abstract
This paper investigates how investors behave in the market as earnings information is released by firms with accounting irregularity allegations that are not settled and how quickly investors adjust to earnings announcements made by these firms. We also examine whether stock volatility has any effect on the speed of adjustment. We find that after irregularity allegations are made, the market anticipates good news sufficiently with no significant market reaction following the good news, while there is a significant amount of delayed short- term response to bad news. We also find that the market responds more rapidly to good news than to bad news. This asymmetric market response is significantly more acute after accounting irregularity allegations are made compared to responses prior to such allegations. We find no relation between stock volatility and the speed of adjustment to earnings announcements when the news is good. Yet when the news is bad, stock volatility negatively affects the speed of adjustment and the effect is significantly lagged following irregularity allegations.
- Publication
Quarterly Journal of Finance & Accounting, 2010, Vol 49, Issue 2, p49
- ISSN
1939-8123
- Publication type
Article