Investor Reaction to Accounting Misstatements Under IFRS : Australian Evidence

We examine the investor reaction to misstatement news for Australian listed firms from 2006 to 2013. We find 4.1% of firm-years have a misstatement and 79% of misstatements are disclosed initially only in the periodic filings (stealth misstatements). We find no investor reaction for the average misstatement, reactions of between -2.3% and -2.8% (-1.5% and -1.7%) for misstatements that reduce prior-period earnings or equity (affect revenue), and reactions of between -1.3% and -2.7% for non-stealth misstatements. Investor reactions are more negative for non-stealth misstatements that reduce prior-period earnings or equity than to stealth misstatements