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This study examines short-term market reaction to financial statement restatements conditional on the initial level of noise in a restated account. I find evidence suggesting that the initial degree of estimation of restated items is an important determinant of market reaction. Investors do not penalize firms that restate noisy items as much as firms that make mistakes in precise items. Moreover, investors anticipate restatements of less noisy items, while the restatements of items that involve a substantial degree of estimation come as a surprise.
