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Information Resources Management Association
Advancing the Concepts & Practices of Information Resources Management in Modern Organizations

Information Asymmetries in the Context of Restatement Announcements

Information Asymmetries in the Context of Restatement Announcements
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Author(s): Pierangelo Rosati (Irish Centre for Cloud Computing and Commerce (IC4), Dublin City University, Ireland), Pietro Mazzola (SDA Bocconi School of Management, Italy) and Riccardo Palumbo (University “G. d'Annunzio” of Chieti-Pescara, European Capital Markets CRC, Italy)
Copyright: 2020
Pages: 18
Source title: Foreign Direct Investments: Concepts, Methodologies, Tools, and Applications
Source Author(s)/Editor(s): Information Resources Management Association (USA)
DOI: 10.4018/978-1-7998-2448-0.ch051


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This chapter presents the results of an empirical investigation on stock trading activity in the context of restatement announcements. The aim is to explore whether sophisticated investors may anticipate accounting restatements, and which factors lead their trading strategies. The empirical analysis shows that sophisticated investors sell before and buy after the announcement. Moreover sophisticated investors trade more when information asymmetry and event-related risk are higher, and do not care about stock's recent performance. In contrast, unsophisticated investors do not follow a particular trading strategy before or after the announcement, stay away from trading when the information gap (risk) is too wide (high), but trade more on stock with positive past performance. Results suggest that sophisticated investors are able to anticipate restatements and exploit their information advantage to speculate.

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