The number of financial restatements has risen sharply over the past decade, but market reactions have grown more muted, according to a study released today by the U.S. Treasury.

The study, conducted by University of Kansas Professor Susan Scholz, examines the growth in financial restatements in the years before and after the Sarbanes-Oxley Act. Financial restatements grew nearly 18-fold, from 90 in 1997 to 1,577 in 2006 with acceleration in restatement activity occurring in 2001 before the implementation of the Sarbanes-Oxley Act.

However, restatements associated with fraud and revenue declined after 2001. Fraud was a factor in 29% of all 1997 restatements, but only 2% of 2006 restatements. The proportion of revenue-related restatements also decreased from 41% in 1997 to 11% in 2006.

It also found that market reactions to the restatements dampened over the period, as the number of restatements grew. Market reaction to financial restatements tended to be more negative when the restatement involved fraud or revenue errors, it said.

Additionally, the study noted that restating companies are typically unprofitable even before the restatement. In the year prior to announcing a restatement, more than half of restating companies reported a net loss.

Treasury did not ask the study’s author to develop policy recommendations. The study was intended to inform federal regulators and advisory committees by looking at the figures often used when discussing U.S. companies’ competitiveness and investor confidence in financial reporting.

“Many respected voices at Treasury’s Capital Markets Competitiveness Conference last year noted the drastic increase in financial restatements over the last decade. It is important to take a hard look at the facts behind this rise,” said Treasury Secretary, Henry Paulson, Jr. “The information in this study should complement the work underway at the Securities and Exchange Commission and the Financial Accounting Standards Board to improve financial reporting for investors.”