Trading Behavior and Price Adjustment Following Earnings Restatement Disclosures by US Multinational Corporations

ABSTRACT We examine how accounting restatements affect equity markets. Using restated earnings announcements as a proxy for reduced credibility, we analyze price and trading volume reactions across firm size. We find systematic market‐wide price adjustments both at and around announcements, indicating that investors incorporate restated information gradually. Trading volume shows significant pre‐ and post‐disclosure activity, consistent with Holthausen and Verrecchia's two‐round trading framework. Large firms drive much of the price response, while small firms’ trading activity clusters before announcements. Overall, our results suggest that restated earnings convey useful information, shaping market behavior and offering policy, practical, and research implications.