Tax Refunds on Overstated Earnings: A Valuation Puzzle.

The number of financial statement restatements practically doubled from 1998 to 2002 (Huron Consulting Group, ). Approximately 37% of these restatements are related to revenue recognition, with most of these resulting in an original overstatement of earnings. From 2000 to 2009, the Securities and Exchange Commission (SEC), on average, issued 200 Accounting and Auditing Enforcement Releases (AAERs) each year (see SEC.gov). Most AAERs lead to restatements. While prior literature focused on the negative consequences to firms from reporting a restatement, the authors' study looks for a mitigating effect from reporting good news along with the bad. [ABSTRACT FROM AUTHOR]