ABSTRACT: Research on restatements has grown significantly in recent years. Many of these studies test hypotheses about the causes and consequences of intentional managerial misreporting but rely on restatement data (such as the GAO database) that contains both irregularities (intentional misstatements) and errors (unintentional misstatements). We argue that researchers can significantly enhance the power of tests related to restatements by distinguishing between errors and irregularities, particularly in recent periods when the relative frequency of error-related restatements is increasing. Based on prior research, the reading of numerous restatement announcements, and the guidance that boards receive from lawyers, auditors, and the SEC on how to respond to suspicions of deliberate misreporting, we propose a straightforward procedure for classifying restatements as either errors or irregularities. We show that most of the restatements we classify as irregularities are followed by fraud-related class action lawsuits as compared to only one lawsuit in the group of restatements classified as errors. As further validation of our proxy, we report that the market reaction to the restatement announcement for our irregularities sample (−14 percent) is also significantly more negative than it is for our errors sample (−2 percent). Finally, we demonstrate the importance of distinguishing errors from irregularities by showing the impact it has on inferences about the relation between restatements and CEO/CFO turnover over time.

We propose a new measure of readability, the Bog Index, which captures the plain English attributes of disclosure (e.g., active voice, fewer hidden verbs, etc.). We validate this measure using a series of controlled experiments and an archival-based regulatory intervention to prospectus filing readability. We also demonstrate the importance of understanding the underlying drivers of quantity-based measures of readability. In particular, we caution researchers that a vast amount of the variation in Form 10-K file size over time is driven by the inclusion of content unrelated to the underlying text in the 10-K (e.g., HTML, XML, PDFs).

ABSTRACT We examine a comprehensive set of investigations by the SEC’s Division of Enforcement offices to provide evidence on the consequences of these office’s busyness on the formal investigation process. We find that higher office case backlog decreases the likelihood of an investigation into a restating firm. Our results show no evidence that higher backlogs affect the SEC’s ability to pursue cases involving revenue recognition issues and high insider trading, which is consistent with the agency’s stated priorities. But our findings indicate that busy SEC offices are less likely to pursue cases with the largest shareholder losses, which is inconsistent with SEC priorities. Backlog also impacts pursued investigations, leading to more prolonged investigations, a lower Accounting and Auditing Enforcement Releases likelihood, and smaller SEC penalties. Our evidence suggests that busyness undermines the SEC’s investigation process. JEL Classifications: G18; G38; K42; M41.

ABSTRACT A longstanding literature suggests that earnings provide the market with relevant information about firm performance, but one often overlooked benefit is their role in disciplining market expectations. This study examines the role of earnings announcements in constraining potential mispricing associated with firm-specific media sentiment. We show that media sentiment-driven quarterly returns (orthogonal to risk factors and fundamental news) largely reverse when public earnings are released. Our results suggest that quarterly earnings announcements play an important role in reducing media sentiment-related mispricing. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G14; L82; M41.