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.

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.

In GAAP We Trust: Examining How Trust Influences Nonprofessional Investor Decisions Under Rules-Based and Principles-Based Standards

2011 ◽  
Vol 24 (1) ◽  
pp. 25-46 ◽  
Author(s):  
Wendy J. Bailey ◽  
Kimberly M. Sawers
Keyword(s):  
Decision Making ◽  
Financial Reporting ◽  
Reporting System ◽  
Data Availability ◽  
Accounting System ◽  
Accounting Standard ◽  
Nonprofessional Investors ◽  
Investment Choices ◽  
A Company ◽  
Allocation Decisions

ABSTRACT In this study, we investigate whether and how trust in our current, more rules-based financial reporting system and type of accounting standard affects nonprofessional investor decision making. In an experiment, 151 nonprofessional investors analyzed two companies that were economically identical except for a single underlying financial reporting difference that allowed one company to more positively report its financial results. By itself, the type of standard (rules-based, principles-based) did not affect investment choices or allocation decisions. However, when trust was considered, nonprofessional investors who are less trusting of our current financial reporting system chose to invest in a company with more positive financial results only when evaluating principles-based financial statements. Conversely, the type of standard did not affect investor decision making for nonprofessional investors who trust our current financial reporting system. These results have implications for standard setters as we move to a more principles-based accounting system. Data Availability: Available on request.

Why do Restatements Decrease in a Clawback Environment? An Investigation into Financial Reporting Executives' Decision-Making during the Restatement Process

2015 ◽  
Vol 90 (6) ◽  
pp. 2515-2536 ◽  
Author(s):  
Jonathan S. Pyzoha
Keyword(s):  
Decision Making ◽  
Executive Compensation ◽  
Financial Reporting ◽  
Financial Statements ◽  
Data Availability ◽  
Archival Studies ◽  
Key Factors ◽  
Ex Post ◽  
Auditor Quality

ABSTRACT Prior archival studies find that firms that voluntarily adopted clawback policies have experienced a reduction in restatements. I experimentally examine this outcome by investigating the influence of two key factors (i.e., executive compensation structure and auditor quality) on financial reporting executives' (hereafter, “executives”) decision-making regarding a proposed restatement that will lead to a clawback of their incentives. I find that executives (i.e., CFOs, controllers, and treasurers) facing a lower quality auditor are less likely to agree with amending prior financial statements when a higher proportion of their pay is incentive-based. However, this tendency is reduced when executives face a higher quality auditor, indicating that higher quality auditors can act as effective monitors. My results identify an ex post unintended consequence of clawback regulation that could at least partially offset the benefits of the ex ante deterrent effects of clawbacks, and that could contribute to findings of less frequent restatements when clawback policies are in place. I discuss potential implications regarding the role of executives during restatement decisions and auditors' risk assessments in a clawback environment. Data Availability: Data are available from the author upon request.

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.

The Effects of Information Disaggregation and Financial Statement Interactivity on Judgments and Decisions of Nonprofessional Investors

2015 ◽  
Vol 30 (3) ◽  
pp. 99-118 ◽  
Author(s):  
Andrea Seaton Kelton ◽  
Uday S. Murthy
Keyword(s):  
Cognitive Load ◽  
Information Overload ◽  
Financial Information ◽  
Data Availability ◽  
Internet Technology ◽  
Financial Statement ◽  
Negative Effects ◽  
Financial Reports ◽  
Web Based ◽  
Nonprofessional Investors

ABSTRACT Despite recent advances in Internet reporting technologies and calls for the increased reporting of disaggregated financial information, extant accounting research has not examined the potential positive and negative effects of providing disaggregated information using interactive web-based financial statements. In an experiment with nonprofessional investors, we investigate whether an Internet technology that provides investors control over the viewing of disaggregated financial information improves investment-related judgments and decisions and whether such effects depend on the utility of the disaggregation. In support of the notion that interactivity mitigates information overload, we find some evidence that the use of the drilldown capability is associated with a decrease in investors' perceived cognitive load. Results also show that investors using a drilldown capability are less susceptible to earnings fixation compared to investors viewing the disaggregation without the drilldown feature. However, we also find that in some circumstances financial statement disaggregation may not be beneficial to investors and that the resultant increase in cognitive load may outweigh any benefits of financial statement interactivity. These results have important and timely implications for standard setters considering whether to require increased disaggregation in financial statement reporting and companies seeking to enhance the usefulness of their web-based financial reports. JEL Classifications: C91; G11; G18; M41. Data Availability: Contact the authors.

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.

Primacy or Recency? A Study of Order Effects When Nonprofessional Investors are Provided a Long Series of Disclosures

2011 ◽  
Vol 23 (1) ◽  
pp. 161-183 ◽  
Author(s):  
Robert Pinsker
Keyword(s):  
Decision Making ◽  
Voluntary Disclosure ◽  
Stock Price ◽  
Price Volatility ◽  
Order Effect ◽  
Decision Quality ◽  
Order Effects ◽  
Nonprofessional Investors ◽  
Recency Effects ◽  
Consistent Direction

ABSTRACT: Firms have the incentive to aggregate multiple pieces of good and bad news together in a consistent direction (i.e., all positive news or all negative news) and disclose it either sequentially or all together (simultaneously) in order to reduce the risk of stock price volatility or large stock price declines. Unfortunately for investors, disclosure patterns such as these may result in order effects, which reduce decision quality. My paper examines the results of three experiments in order to determine: (1) which order effect, if any, results when long series of consistent direction voluntary disclosures are made, and (2) if the sequential or simultaneous nature of the disclosures exacerbates any order effect found. The first two experiments use undergraduates as participants, while the third experiment uses actual nonprofessional investors to try and tease out explanations for the experimental findings. I find recency effects for all conditions in all experiments, and significantly greater recency effects for the sequential conditions relative to the simultaneous conditions in the 40-cue experiments. Additionally, results of the supplemental experiment provide evidence that nonprofessional investors can be information seeking and active in their investment decision-making, which can prohibit attention decrement. Findings contribute to the voluntary disclosure, judgment and decision-making (JDM), and belief revision literatures, as well as highlight the context-specific nature of the belief-adjustment model’s predictions.

scholarly journals Environmental costs and its role in improving the quality of financial reporting

2019 ◽  
Vol 8 (5) ◽  
pp. 194-211
Author(s):  
Ali Altug Bicer ◽  
Eman Ali El.Darewi
Keyword(s):  
Decision Making ◽  
Financial Reporting ◽  
Significant Relationship ◽  
Environmental Issues ◽  
Environmental Costs ◽  
Financial Reports ◽  
Oil Companies ◽  
Measurement Models

This study aims to show the importance of environmental costs, and the role of these costs to improve the quality of financial reporting in Libyan oil companies and offering the suggestions to develop it. To achieve the objectives of the study, the researchers developed a questionnaire contains (35) questions, distributed to (100) of the officials of the financial departments, auditing, and costs and the parties concerned with the preparation of financial reports, collected and used in the analysis, a one-sample T-test was used. It seems to the researchers that there was the presence of environmental awareness and the company's strategy towards environmental issues, the study also showed there are obstacles that limit the application of measurement and disclosure of environmental costs. Moreover, it seems to the researchers that the measurement models for environmental costs increase the company's commitment to environmental responsibilities. The results of the study also showed the presence of a statistically significant relationship between environmental costs and the increase in the quality of the financial reports. Finally, there was a statistically significant relationship between environmental costs and decision making. The study suggested some recommendations to develop the application of accounting for environmental costs and disclosure to provide appropriate information to rationalize and take decisions in the oil companies in Libya, as well as the need for companies to protect the environment and provide funding and support to preserve the environment.

Inferring Remediation and Operational Risk from Material Weakness Disclosures

2016 ◽  
Vol 29 (1) ◽  
pp. 1-17 ◽  
Author(s):  
Stephen K. Asare ◽  
Arnold M. Wright
Keyword(s):  
Financial Reporting ◽  
Investment Decisions ◽  
Data Availability ◽  
Risk Assessments ◽  
Material Weakness ◽  
Nonprofessional Investors ◽  
Operational Risks ◽  
Specific Material ◽  
The Relationship ◽  
Current Standards

ABSTRACT Understanding the inferences that nonprofessional investors draw from material weakness disclosures is important because of their effect on investment decisions and for assessing whether current standards serve their needs. Prior research shows that users assess higher financial reporting risk for an entity-level material weakness compared to an account-specific material weakness because they perceive the former as presenting a higher risk of potential misstatement. We extend the literature by proposing two variables (remediation and operational risks) that mediate and incrementally explain the observed relationship between the type of material weakness and financial reporting risk assessments. In an experiment involving 181 nonprofessional investors, we find, as predicted, that the entity-level material weakness signals not just a higher potential for undetected misstatements but also higher remediation and operational risks. Further, we find that the two variables fully mediate and incrementally explain the relationship between the type of material weakness and financial reporting risk assessments. To the extent that these variables are decision relevant, our findings suggest that regulators should reconsider and possibly reengineer the current disclosure regime that allows management to disclose unaudited information about these variables. Data Availability: Contact the authors.

scholarly journals Response to the GASB Invitation to Comment on Financial Reporting Model Improvements—Governmental Funds (Project No. 3-25I)

2018 ◽  
Vol 7 (1) ◽  
pp. 87-96 ◽  
Author(s):  
Dara Marshall ◽  
Mary L. Fischer ◽  
Renee Flasher ◽  
Amy Foshee Holmes ◽  
Carol M. Jessup ◽  
...  
Keyword(s):  
Financial Reporting ◽  
Current Model ◽  
Data Availability ◽  
Time Dimension ◽  
Operating Cycle ◽  
Financial Reports ◽  
Governmental Accounting ◽  
Term Model ◽  
Near Term ◽  
One Year

ABSTRACT The Governmental Accounting Standards Board (GASB) has been actively engaged in the process of making improvements to the financial reporting model to provide more useful information to the users of the financial reports of governmental entities. The GASB proposed three recognition approaches to replace the current financial resources reporting model for governmental funds. The three approaches vary along a time dimension. The “near-term” model is the most similar to the current model with a specified reporting period of 60–90 days. A “short-term” model extends the transaction reporting to be the government's one-year operating cycle. Finally, a “long-term” model would report both current and noncurrent assets and liabilities for governmental funds. Data Availability: Details regarding the GASB project can be found on its website at: https://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176168729663&acceptedDisclaimer=true.

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