Measuring the Effect of Managerial Ability on the Relationship between Restatements Period and Stock Price Synchronicity: Evidence from Firms Listed on the Saudi Stock Exchange

Study Objective: This study aims to examine the Relationship between Restatements Period (Dark Period) and Stock Price Synchronicity, and whether the Managerial Ability affects on this relationship.
Study methodology: This study used the content analysis method to obtain the data required for statistical analysis. The study sample consisted of (90) observations (Firm-year) of firms listed in the main index of the Saudi Stock market, during the period from 2012 to 2019. Restatements Period was measured by the number of days that elapses between initial restatement announcement and the filing of the amended financial statements. Stock Price Synchronicity was also measured using the coefficient of determination, ( ) estimated from market model regression. The Managerial Ability was measured using the model of (Demerjian et al., 2012). And to examine the study hypotheses, the study used the ordinary least squares regression model.
Findings: This study provides evidence, after controlling for other variables, that stock price synchronicity is positively and significantly related to restatements period. Also, the results proved that restatements period was negatively and significantly associated with a high level of the managerial ability. Additionally, the results of the regression analysis (Model 1) proved that restatements period had a positive and significant effect on stock price synchronicity. Therefore, the first hypothesis of this study was accepted. Also, the results of the regression analysis (Model 2) proved that a high level of the managerial ability weakens the positive relationship between restatements period and stock price synchronicity, and thus the second hypothesis of this study was accepted.
Originality/Value: This Study contributes to the literature on Restatements Period (Dark Period), Managerial Ability and Stock Price Synchronicity. This is the first study (To the best of the researcher's knowledge) to empirically examine whether the Managerial Ability affects on the relationship between Restatements Period and stock price synchronicity in the firms listed on the saudi stock exchange. The results of this study, also may be useful to all those interested in stock price movements in financial markets.