Accounting restatements: Market and liquidity impacts.

Accounting restatements are significant economic events that impact a firm's reputation for integrity and reliable reporting. This study used around 2900 firms of United States to study the stock market and liquidity impacts at accounting restatement during 1997 to 2010. In addition, this study also attempts to capture the impacts of regulatory initiatives like Sarbanes-Oxley Act (SOX) on stock market and liquidity impacts of accounting restatements. This study used Fama-French 3 factor model for calculating the expected abnormal return and found that post-regulation negative abnormal return is lower than pre-regulation period. This study also documented that post-regulation period and business cycle was negatively related with illiquidity. However, no statistical significance was found between accounting restatement and illiquidity. --Leaf ii.