Abstract Taking HangXiao Steel Structure as an example, this paper focuses on the behaviors and economic consequences of misrepresentation. It’s found that significant market reactions were triggered by the speculative information disclosed by the case company. Moreover, abnormal returns maintained at a high level of volatility in the following week, and investors’ action also sustained at a fairly high level. As the information disclosed by the case company was a piece of good news, it produced significantly positive cumulative abnormal returns, which still continued to rise. We believe that the financial forecast should be considered as a “double-edged sword”. Only when the corresponding theoretical constraints and institutional premises are met, would it play its role in an effective way. Otherwise, it tends to mislead investors’ decision.
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Received: 08 July 2010
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