Review of Accounting Studies

, Volume 13, Issue 4, pp 419–451

Rewriting earnings history


DOI: 10.1007/s11142-007-9041-4

Cite this article as:
Lev, B., Ryan, S.G. & Wu, M. Rev Account Stud (2008) 13: 419. doi:10.1007/s11142-007-9041-4


Research on the usefulness of financial information generally focuses on the innovation in the information examined, such as an earnings surprise or cash flow growth. Consequently, prior research sheds little light on the role of the rich historical record of financial information in users’ decision-making. Using a sample of published restatements of earnings, we show that the revision of the historical pattern of earnings, distinct from the magnitude of the restatement and its impact on current earnings, significantly affects investors’ decisions and predicts class action lawsuits. Specifically, we find that restatements that eliminate or shorten histories of earnings growth or positive earnings have significantly more adverse effects for investor valuations and the likelihood of lawsuits than other restatements. This evidence about the value-relevance of refreshing the historical record of earnings is pertinent to the FASB’s recent cautious expansion of the scope of circumstances that require a restatement of financial information in FAS 154.


Historical record Revisions Financial information Investors’ decisions Class action lawsuits 

JEL Classifications

M41 G14 K22 

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Stern School of BusinessNew York UniversityNew YorkUSA
  2. 2.Faculty of Business and EconomicsThe University of Hong KongHong Kong SARP. R. China

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