REGRESSION EQUATION FOR

STOCK PERFORMANCE AFTER AN EARNINGS RESTATEMENT

Subsequent 90-day move (%) = -13.5 – (0.883 x preceding 90-day % change)

The R=squared is a high 9.5%. That means in this case that a move of 1 unit above the mean in x, the independent variable (the percent change in the previous three months) would create an 8% change in y, the dependent variable (the percent change in the move after the restatements through the end of the year.)

Thus, if a company were to decline 25% relative to the market in the three months before a restatement announcement, then the predicted change would be:

-13.5 -0.9 x -25% = + 9%.

Similarly, if a company were to rise 20% relative to the market in the three months before the announcement of a restatement, the predicted change would be:

-13.5 -0.9 x 20% = -31.5%.