Information Asymmetry and Restatement Announcements: Evidence from Informed Trading

This study examines how share repurchases and insider buying reduce the uncertainty associated with accounting restatements. We document significantly less negative reactions to accounting restatements when managers’ past behavior shows a willingness to invest in their own stock, either through corporate or personal purchases of company stock. This result is incremental to the general tendency of stocks to drift upwards following repurchases and insider buying, and holds after controlling for the economic severity of the restatement. Our results provide evidence of the importance of uncertainty reducing signals in the price formation process following accounting restatements.