Risk of Extreme Accounting Failures
Speaker
Abstract
We use extreme value theory to estimate the risk of extreme accounting failures using U.S. restatement data over the period 1995-2022. This risk has as yet rarely been quantified, even though its reduction is a commonly cited policy objective in _nancial reporting regulation. We find that the Value-at-Risk has been halved after the introduction of the Sarbanes-Oxley act. Extreme financial restatement risk on the U.S. stock market, however, remains substantial: the estimated 1-year probability of a more than $1bn downward correction in net income is still close to 40%.
