Fundamentals of Business Intelligence (FBI) Practice Exam

If a public company has to refile a financial statement to the SEC, what is most likely to happen to their stock price?

1. It will rise significantly

2. It will remain unchanged

3. It will fall temporarily

4. It will be delisted from the exchange

The correct answer is: It will fall temporarily

When a public company is required to refile a financial statement with the SEC, it typically indicates that there were errors or material changes in the previously filed documents. This situation often raises concerns among investors regarding the company's financial health and transparency. As investors react to this news, the stock price is likely to fall temporarily. The decline in stock price is primarily due to a loss of confidence from shareholders and potential investors who may view the need for re-filing as a sign of underlying problems within the company's reporting practices or operational performance. Market reactions are influenced by the perception that uncertainty has increased, making investors wary and prompting some to sell off their shares. While the stock price might eventually recover as the company addresses the issues and communicates effectively with investors, the immediate impact is generally a temporary fall in price driven by caution in the market. This reflects a normal market behavior in response to perceived risks, especially concerning the credibility of financial information that investors rely on for making informed decisions.