Regulation FD, accounting restatements and transient institutional investors’ trading behavior |
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Authors: | Xu LiSuresh Radhakrishnan Haeyoung ShinJin Zhang |
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Institution: | a College of Business and Economics, Lehigh University, Bethlehem, PA 18015, United States b School of Management, University of Texas at Dallas, Richardson, TX 75083, United States c School of Business, University of Houston at Clear Lake, Houston, TX 77058, United States d California State University at Sacramento, Sacramento, CA 95819, United States |
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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. |
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