The effect of reporting frequency on the timeliness of earnings: The cases of voluntary and mandatory interim reports

The effect of reporting frequency on the timeliness of earnings: The cases of voluntary and mandatory interim reports
Author(s): Butler, Marty
Year: 2005
Paper Number: GBS-ACC-2005-017
Goizueta Department: Accounting

Abstract

This study examines how financial reporting frequency affects the speed with which accounting information is reflected in price. The predicted effect is ambiguous because disclosure frequency can influence the information-gathering activities of intermediaries and because mandatory increases in disclosure can affect the propensity of firms to make voluntary disclosures. Based on a sample of 28,824 reporting-frequency observations from 1950 to 1973, we find little evidence of a difference in timeliness between firms reporting quarterly and those reporting semiannually, even after controlling for self-selection. We do find, however, that a subsample of firms experienced increased timeliness after changing how frequently they reported -- firms that voluntarily increased reporting frequency from semiannual to quarterly reporting. In contrast, among firms whose increase was mandatorily imposed by the SEC, there is no significant improvements in timeliness. We conclude that there is little evidence to support the claim that regulation forcing firms to report more frequently improves earnings timeliness.