The Impact Of Forced Financial Restatements On The Share Prices Of JSE Listed Firms

Abstract

This study investigates the effect of forced financial restatements on the share prices listed on the Johannesburg Stock Exchange (JSE). An event study methodology is used to examine the share price reaction of 34 firms that forcefully restated their results following a GAAP Monitoring Panel review. The results indicate that the equity of 79.1 per cent of the firms decreased as a result of the restatement. The average standardised abnormal returns for 55.9 per cent of these firms were also found to be negative. The study further finds that the volume of shares traded directly following the announcement increased substantially, especially five days following the announcement. The study makes a contribution to the existing literature in that is the first of its kind to focus on the share price reaction of forced financial restatements on share prices in the South African context.