The Restating of Financial Statements by REITs

This article is the first to examine financial restatements by Real Estate Investment Trusts (REITs). We provide a descriptive breakdown of the underlying causes of REIT restatements as well as overall and subsample analyses of stock market reactions to restatements from 2000 to 2011. REIT restatements occur for a large variety of accounting issues with the most common being accounting errors related to leases, mergers and acquisitions, depreciation, revenue recognition, and consolidation of subsidiaries. We find that the average market reaction for REIT restatements is negative 0.52 percent, which is less negative than non-REIT restatements. However, investigation reveals a significant portion of REIT restatements result in double-digit excess returns. Overall, the findings suggest REIT restatements occur for a variety of reasons and REIT investors place high value on quality financial statements