Interim Reporting Frequency and the Mispricing of Accruals

2018 ◽  
Vol 32 (3) ◽  
pp. 29-47
Author(s):  
Shou-Min Tsao ◽  
Hsueh-Tien Lu ◽  
Edmund C. Keung
Keyword(s):  
Financial Reporting ◽  
Stock Prices ◽  
Data Availability ◽  
Financial Reports ◽  
Regulatory Changes ◽  
Sample Composition ◽  
Reporting Frequency ◽  
Over Time ◽  
Jel Classifications ◽  
Accrual Mispricing

SYNOPSIS This study examines the association between mandatory financial reporting frequency and the accrual anomaly. Based on regulatory changes in reporting frequency requirements in Taiwan, we divide our sample period into three reporting regimes: a semiannual reporting regime from 1982 to 1985, a quarterly reporting regime from 1986 to 1987, and a monthly reporting regime (both quarterly financial reports and monthly revenue disclosure) from 1988 to 1993. We find that although both switches (from the semiannual reporting regime to the quarterly reporting regime and from the quarterly reporting regime to the monthly reporting regime) hasten the dissemination of the information contained in annual accruals into stock prices and reduce annual accrual mispricing, the switch to monthly reporting has a lesser effect. Our results are robust to controlling for risk factors, transaction costs, and potential changes in accrual, cash flow persistence, and sample composition over time. These results imply that more frequent reporting is one possible mechanism to reduce accrual mispricing. JEL Classifications: G14; L51; M41; M48. Data Availability: Data are available from sources identified in the paper.

scholarly journals Effects of Increased Reporting Frequency on Nonprofessional Investors' Earnings Predictions

2011 ◽  
Vol 24 (1) ◽  
pp. 91-107 ◽  
Author(s):  
Terence J. Pitre
Keyword(s):  
Decision Making ◽  
Financial Reporting ◽  
Historical Data ◽  
Seasonal Pattern ◽  
Data Availability ◽  
Financial Reports ◽  
Nonprofessional Investors ◽  
Recency Effects ◽  
Primacy Effects ◽  
Reporting Frequency

ABSTRACT More frequent financial reporting has been a topic of debate for many years. However, little evidence exists about the possible effects of more frequent reporting on investors' decision making. Using a between-subjects experiment, this study analyzes how altering the timing or frequency of earnings reports—weekly, as opposed to quarterly, reports—affects the accuracy and dispersion of earnings predictions by nonprofessional investors. This is important, since regulators have identified nonprofessionals as a significant audience for financial reports. I hypothesize and find that more frequent reporting results in less accurate predictions and greater variance, particularly when a strong seasonal pattern exists. Finally, investors in the more-frequent reporting condition self-reported that they were more influenced by older historical data—suggesting primacy effects—while those in the less-frequent reporting condition self-reported that they were more influenced by the newer historical data, suggesting recency effects. Data Availability: Data are available from the author on request.

Retroactive Tax Legislation, Reported Earnings, and Investors' Responses to Earnings “Surprises”: Evidence from R&D Credit Extensions

2016 ◽  
Vol 38 (2) ◽  
pp. 87-109 ◽  
Author(s):  
Brian Bratten ◽  
David S. Hulse
Keyword(s):  
Financial Reporting ◽  
Stock Prices ◽  
Unintended Consequences ◽  
Data Availability ◽  
Substantial Part ◽  
Tax Rates ◽  
Financial Reporting Standards ◽  
Average Decrease ◽  
Tax Legislation ◽  
Reported Earnings

ABSTRACT When Congress retroactively extends a temporary tax rule, the effect on earnings is complex because financial reporting standards require firms to apply the integral method using enacted tax law to determine quarterly income tax expense. We model this effect and examine earnings announcements following retroactive extensions of the federal R&D tax credit to test how investors incorporate the effect into stock prices. We find that investors respond when earnings are announced, even though the effect could have been determined several weeks earlier. We also show that in recent years, the effects of retroactive extensions of the credit are a substantial part of the average decrease in effective tax rates (ETRs) from the third to fourth quarter for calendar-year firms. Our results have implications for investors and researchers examining earnings and ETRs around retroactive extensions of temporary tax rules and suggest that congressional delays and GAAP interact to produce unintended consequences. JEL Classifications: M41; M48; G14; H25. Data Availability: Data used in this study are available from the sources identified in the text.

scholarly journals Rethinking Non-Financial Reporting: A Blueprint for Structural Regulatory Changes

2020 ◽  
Vol 10 (2) ◽  
Author(s):  
David Monciardini ◽  
Jukka Tapio Mähönen ◽  
Georgina Tsagas
Keyword(s):  
Financial Reporting ◽  
Final Section ◽  
Thematic Issue ◽  
Revision Process ◽  
The Past ◽  
Regulatory Changes ◽  
Collective Effort ◽  
Key Points ◽  
Structural Failures ◽  
Over Time

AbstractThe article introduces the thematic issue of Accounting, Economics, and Law: A Convivium dedicated to the regulation of non-financial reporting. It provides the reader with an overview of the varying approaches and frameworks that have emerged over time in relation to the reporting of non-financial information. In particular, the article focuses on the European Non-Financial Reporting Directive. We maintain that to date this latter initiative has failed to deliver on its intended objectives. In the context of the ongoing revision process of this initiative, the present paper outlines five key areas to be improved drawing on the lessons learnt from the past as well as from key points raised by the papers in the present thematic issue. What emerges from this collective effort is a renewed agenda that highlights some of the structural failures of the current reporting regime and a blueprint for future reforms. The final section summarises the various contributions of articles included in this thematic issue.

Is Earnings Quality Associated with Corporate Social Responsibility?

2012 ◽  
Vol 87 (3) ◽  
pp. 761-796 ◽  
Author(s):  
Yongtae Kim ◽  
Myung Seok Park ◽  
Benson Wier
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Earnings Management ◽  
Financial Reporting ◽  
Data Availability ◽  
Socially Responsible ◽  
Financial Reports ◽  
Top Executives ◽  
Accruals Quality ◽  
Corporate Social

ABSTRACT This study examines whether socially responsible firms behave differently from other firms in their financial reporting. Specifically, we question whether firms that exhibit corporate social responsibility (CSR) also behave in a responsible manner to constrain earnings management, thereby delivering more transparent and reliable financial information to investors as compared to firms that do not meet the same social criteria. We find that socially responsible firms are less likely (1) to manage earnings through discretionary accruals, (2) to manipulate real operating activities, and (3) to be the subject of SEC investigations, as evidenced by Accounting and Auditing Enforcement Releases against top executives. Our results are robust to (1) controlling for various incentives for CSR and earnings management, (2) considering various CSR dimensions and components, and (3) using alternative proxies for CSR and accruals quality. To the extent that we control for the potential effects of reputation and financial performance, our findings suggest that ethical concerns are likely to drive managers to produce high-quality financial reports. Data Availability: Data used in this study are available from public sources identified in the study.

Do Auditors Recognize the Potential Dark Side of Executives' Accounting Competence?

2018 ◽  
Vol 93 (6) ◽  
pp. 1-28 ◽  
Author(s):  
Anne Albrecht ◽  
Elaine G. Mauldin ◽  
Nathan J. Newton
Keyword(s):  
Financial Reporting ◽  
Prior Experience ◽  
Financial Statements ◽  
Audit Fees ◽  
Data Availability ◽  
Dark Side ◽  
Audit Fee ◽  
Aggressive Attitude ◽  
Jel Classifications

ABSTRACT Practice and research recognize the importance of extensive knowledge of accounting and financial reporting experience for generating reliable financial statements. However, we consider the possibility that such knowledge and experience increase the likelihood of material misstatement when executives have incentives to misreport. We use executives' prior experience as an audit manager or partner as a measure of extensive accounting and financial reporting competence. We find that the interaction of this measure and compensation-based incentives increases the likelihood of misstatements. Further, auditors discount the audit fee premium associated with compensation-based incentives when executives have accounting competence. Together, our results suggest that a dark side of accounting competence emerges in the presence of certain incentives, but auditors view accounting competence favorably despite the heightened risk. In further analyses, we demonstrate that executives' aggressive attitude toward reporting exacerbates the effect of accounting competence and compensation-based incentives on misstatements, but not on audit fees. JEL Classifications: M41; M42. Data Availability: Data are available from public sources identified in the text.

Determinants and Consequences of Quantitative Critical Accounting Estimate Disclosures

2019 ◽  
Vol 94 (5) ◽  
pp. 189-218 ◽  
Author(s):  
Matthew Glendening ◽  
Elaine G. Mauldin ◽  
Kenneth W. Shaw
Keyword(s):  
Audit Committee ◽  
Securities And Exchange Commission ◽  
Data Availability ◽  
Financial Reports ◽  
The Public ◽  
Estimation Uncertainty ◽  
Earnings Surprises ◽  
Accounting Expertise ◽  
Insight Into ◽  
Jel Classifications

ABSTRACT The Securities and Exchange Commission (SEC) recommends that firms provide MD&A disclosures quantifying the earnings effect of reasonably likely changes in critical accounting estimates (quantitative CAE). This paper examines the determinants and consequences of quantitative CAE. We find that quantitative CAE are negatively associated with management's incentives to misreport (proxied by portfolio vega) and positively associated with audit committee accounting expertise and with audit offices with multiple quantitative CAE clients. These findings hold for the presence, initiation, number, and magnitude of quantitative CAE, and for both pension and non-pension quantitative CAE. We also find that incidences of AAERs, misstatements, and small positive earnings surprises decrease after initiation of quantitative CAE. Collectively, our findings provide insight into the use of quantitative disclosure to inform users about accounting estimation uncertainty in financial reports. JEL Classifications: M41; M42; M48. Data Availability: Data are available from the public sources cited in the text.

The Dark Side of Low Financial Reporting Frequency: Investors' Reliance on Alternative Sources of Earnings News and Excessive Information Spillovers

2020 ◽  
Vol 95 (6) ◽  
pp. 23-49 ◽  
Author(s):  
Salman Arif ◽  
Emmanuel T. De George
Keyword(s):  
Financial Reporting ◽  
Trading Volume ◽  
Price Volatility ◽  
Data Availability ◽  
Dark Side ◽  
Earnings Announcement ◽  
Earnings Information ◽  
Alternative Sources ◽  
Annual Earnings ◽  
Reporting Frequency

ABSTRACT This paper examines how low financial reporting frequency affects investors' reliance on alternative sources of earnings information. We find that the returns of semi-annual earnings announcers (i.e., low reporting frequency stocks [LRF]) are almost twice as sensitive to the earnings announcement returns of U.S. industry bellwether peers for non-reporting periods compared to reporting periods. Strikingly, these heightened spillovers are followed by return reversals when investors finally observe own-firm earnings at the subsequent semi-annual earnings announcement. This indicates that investors periodically overreact to peer-firm earnings news in the absence of own-firm earnings disclosures in interim periods. We also find elevated price volatility and trading volume around earnings announcements for non-reporting periods, consistent with theories of investor overconfidence. Collectively, our results suggest that investors are unable to successfully offset the information loss arising from low reporting frequency, thus impairing their ability to value firms and adversely affecting the quality of financial markets. JEL Classifications: M41; M48; G14. Data Availability: Data are available from the public sources cited in the text.

A Comparison of XBRL Filings to Corporate 10-Ks—Evidence from the Voluntary Filing Program

2011 ◽  
Vol 25 (2) ◽  
pp. 227-245 ◽  
Author(s):  
Jon Bartley ◽  
Al Y. S Chen ◽  
Eileen Z Taylor
Keyword(s):  
Technological Change ◽  
Financial Reporting ◽  
Large Scale ◽  
Accounting Standards ◽  
Reporting Standards ◽  
Technological Changes ◽  
Financial Reports ◽  
Business Reporting ◽  
Financial Reporting Standards ◽  
Over Time

SYNOPSIS eXtensible Business Reporting Language (XBRL) has the potential to improve the transparency of financial reports; however, its complexity creates the risk of introducing errors that are a threat to its usefulness. XBRL is a complex technological change in financial reporting of nearly unprecedented scope. Prior to June 2009, the date of the first mandated XBRL filings, the SEC made available a Voluntary Filing Program (VFP) to assist in addressing the difficulties of creating XBRL documents. This study examines errors in the VFP filings, and investigates whether stakeholders used their experience to improve the XBRL technology and processes. Findings indicate a reduction in errors over time, suggesting that the VFP for XBRL was successful. These results support the use of a VFP to identify and solve unanticipated issues and evaluate the feasibility of implementing large-scale technological changes in financial reporting and perhaps comprehensive changes in accounting standards such as the implementation of International Financial Reporting Standards.

Matching Premiums in the Executive Labor Market

2019 ◽  
Vol 94 (6) ◽  
pp. 109-136 ◽  
Author(s):  
Mary Ellen Carter ◽  
Francesca Franco ◽  
İrem Tuna
Keyword(s):  
Data Availability ◽  
Executive Turnover ◽  
Executive Pay ◽  
Sources Of Uncertainty ◽  
Managerial Talent ◽  
Additional Costs ◽  
New Firm ◽  
Over Time ◽  
Jel Classifications

ABSTRACT We study whether executives receive pay premiums for the uncertainty of their match with a new firm. Using changes in executive-firm matches from Execucomp, we document that executives receive significant attraction premiums when they move to new firms. These premiums vary with proxies that capture potential sources of uncertainty about the quality of the match, and are incremental to pay for managerial talent, generalist ability, industry turnover risk, and potential additional costs incurred by the new employer to attract the executive to the firm, such as payments for forfeited equity and relocation costs. Consistent with compensation for uncertainty of fit, we find that the premiums decrease with the executive's tenure at the new firm, as the uncertainty about the executive-firm match is resolved over time. Our findings raise the possibility that attraction premiums are an additional cost of executive turnover and may contribute to the overall rise in executive pay. JEL Classifications: J24; J33; M12; M52. Data Availability: Data are available from sources cited in the text.

scholarly journals Transparency Regulation and Stock Price Informativeness: Evidence from the European Union's Transparency Directive

2019 ◽  
Vol 18 (2) ◽  
pp. 89-113 ◽  
Author(s):  
Olena V. Watanabe ◽  
Michael J Imhof ◽  
Semih Tartaroglu
Keyword(s):  
Stock Price ◽  
Stock Return ◽  
Data Availability ◽  
Price Informativeness ◽  
Financial Reports ◽  
Corporate Transparency ◽  
Financial Disclosures ◽  
Stock Price Informativeness ◽  
Transparency Directive ◽  
Jel Classifications

ABSTRACT We examine changes in stock price informativeness following the European Union's Transparency Directive (TPD). The TPD, implemented by country between 2007 and 2009, enhanced corporate transparency through mandating regular firm financial disclosures and facilitating the dissemination of financial reports. Using stock return synchronicity as a proxy for stock price informativeness, we find that price informativeness improved following implementation of the TPD. This improvement was more pronounced in countries with strong regulatory environments than those with weak regulatory environments. We additionally examine a later amendment to the TPD that eliminated the requirement of quarterly financial disclosures and document an increase in stock return synchronicity following the amendment. Our findings support prior research suggesting that transparency regulations improve financial information. JEL Classifications: F30; G15; G30; M4. Data Availability: Data are available from the sources cited in the text.

Sign in / Sign up

Export Citation Format

Share Document