The costs of restatements

For large companies, financial restatements have become less of an issue. As companies have moved down the Sarbanes Oxley learning curve, they have reduced mistakes greatly. But the issue looks large for smaller companies, who are still more likely to restate earnings. Compliance with 404 may boost the number of restatements. A sobering thought, especially as the credit crunch lingers, is that restatements often translate into more expensive loans. Financial Week notes a study by professors John Graham of Duke University, Si Li of Wilfred Laurier University and Jiaping Qiu of McMaster University, that found that loan spreads for companies that issued restatements paid about 210 basis points over LIBOR compared with an average 141. When restatements were due to fraud, it was 245 points. The study also found that these loans also carry more stringent covenants, higher collateral requirements and shorter terms. There's an obvious lesson here.  

For more:
- here's the Financial Week article