Keywords

restatements, manipulation, earnings management, peer firm reporting, contagion, social networks theory, structural ties

Abstract

Gleason, Jenkins, and Johnson (2008) provide evidence that restatements lead to stock price declines among non-restating industry peer firms, suggesting that investors perceive contemporaneous manipulation within the industry. In contrast, Kedia, Koh, and Rajgopal (2015) find that restatements—especially less severe ones—encourage peer firms to initiate earnings manipulation. These divergent findings, together with the rising prevalence of less severe restatements and advances in monitoring technologies, motivate a re-examination of manipulation contagion. Although we are able to replicate the results of both seminal studies, we find that the results in Kedia, Koh, and Rajgopal (2015) are sensitive to design choices that affect the measurement of key variables. When this measurement error is minimized, the results highly favor the conclusion that industry and local peer firms engage in earnings manipulation concurrently with restating firms and that reporting aggressiveness declines, rather than begins, following peer restatements. Using multiple measures of earnings management, we find corroborating evidence of either no contagion or less aggressive reporting, particularly among firms that were previously more liberal with their use of accruals. Overall, our results do not generally support the notion that restatements generate contagion among peer firms.

Original Publication Citation

“Do peer revenue restatements still generate contagion?” with Melissa Lewis-Western and Michael Wilkins. Review of Accounting Studies.

Document Type

Peer-Reviewed Article

Publication Date

2026

Publisher

Review of Accounting Studies

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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