Less timely earnings announcements and voluntary disclosure

The release of earnings information has become less timely in recent years partly because firms increasingly disclose earnings concurrently with their periodic reports (e.g., 10-Ks, 10-Qs). We examine whether firms use voluntary disclosure to mitigate the negative economic consequences of less timely earnings announcements (EAs). We find that firms with less timely EAs are more likely to provide voluntary 8-K filings over the period leading to the EA. We also find that investors’ demand for timely information, the nature of earnings news and litigation risk affect the extent to which firms provide voluntary disclosure to compensate for less timely EAs. The negative effect of less timely EAs on information asymmetry is attenuated when firms provide voluntary 8-K filings prior to EAs. Overall, our findings suggest that firms voluntarily communicate with investors using voluntary disclosure when their EAs are less timely.     

Enforcement and disclosure under regulation fair disclosure: an empirical analysis

While Regulation Fair Disclosure (FD) was designed to benefit investors by curbing the selective disclosure of material non‐public information to ‘covered’ investors, such as analysts and institutional investors, it can also impose costs. This paper finds that FD levies three kinds of enforcement and disclosure costs. First, investors cannot recover as part of an SEC enforcement action the gains to covered investors from their alleged use of the non‐public information. Second, investors lose because the market responds negatively to an SEC enforcement announcement. Third, investors suffer because some companies post their FD filings well after the due date, without earlier public disclosure.     

The new Form 8-K disclosures

The Securities and Exchange Commission (SEC) has mandated new disclosure requirements in Form 8-K, which became effective on August 23, 2004. The SEC expanded the list of items that have to be reported and accelerated the timeliness of these reports. This study examines the market reactions to 8-Ks filed under the new SEC regime and investigates whether periodic reports (10-K/Qs) became less informative under the new 8-K disclosure rules. We observe that the newly required 8-K items constitute over half of all filings and that most firms disclose the required items within the new shortened period (four business days). We find that all disclosed items (old and new) are associated with abnormal volume and return volatility around both the event and the SEC filing dates, and some items have significant return drifts after the SEC filings. Surprisingly, we find that the information content of periodic reports has not diminished by the more expansive and timely 8-K disclosures under the new guidance, possibly indicating that investors may use periodic filings to interpret the effects of material events that had been disclosed earlier.     

An Examination of the Differential Impact of Regulation FD on Analysts' Forecast Accuracy

Regulation fair disclosure (FD) requires companies to publicly disseminate information, effectively preventing the selective pre‐earnings announcement guidance to analysts common in the past. We investigate the effects of Regulation FD's reducing information disparity across analysts on their forecast accuracy. Proxies for private information, including brokerage size and analyst company‐specific experience, lose their explanatory power for analysts' relative accuracy after Regulation FD. Analyst forecast accuracy declines overall, but analysts that are relatively less accurate (more accurate) before Regulation FD improve (deteriorate) after implementation. Our findings are consistent with selective guidance partially explaining variation in the forecasting accuracy of analysts before Regulation FD.     

Differential effects of regulation FD on short- and long-term analyst forecasts

In this paper, we provide evidence that the quality of short-term analyst forecasts improved but the quality of long-term analyst forecasts deteriorated after the implementation of Regulation Fair Disclosure (FD). More specifically, our results show that the precision of the idiosyncratic information component of short-term forecasts improved in the post-FD period, whereas the precision of both the common and idiosyncratic information components of long-term forecasts declined. We attribute this result to the reduced disclosure of long-term, future-oriented information in the post-FD period. Thus our results support assertions by some analysts that FD has had a chilling effect on information that is relevant to long-term forecasts.     

Information, Selective Disclosure, and Analyst Behavior

This paper examines whether the prohibition of selective disclosures to equity research analysts mandated by Regulation FD alters the amount of information and the manner in which it is revealed to the market. We demonstrate that equity research analysts are more responsive to information contained in company-initiated disclosures after Reg FD, suggesting that regulation has affected the importance of various channels of communication. We also present evidence consistent with the notion that managers use earnings guidance as a substitute for selective disclosure following the passage of Reg FD.     

Inter‐temporal changes in analysts’ forecast properties under the Australian continuous disclosure regime

Corporate disclosure regulations are important mechanisms for investor protection. This study examines the inter‐temporal changes in analysts’ forecast properties over the period 1988–2001 as Australia’s continuous disclosure regulation and enforcement intensity changed. The effectiveness of the continuous disclosure regime has been a question of interest since its inception, but research in this area is limited. Our results suggest that analysts’ forecast accuracy and dispersion improved for sample firms in response to the proposal and introduction of continuous disclosure regulations. However, following increased enforcement from 1998, analysts’ forecast dispersion deteriorated for small firms, possibly due to a decrease in private information received by financial analysts as regulators became more proactive in enforcing the ban on selective disclosure.     

Wall Street analysts as investor relations officers

This paper examines the practice of hiring financial analysts as investor relations officers (IRO). We posit that analysts-turned-IROs (AIROs) have a competitive advantage in communicating with investors, thereby lowering the effort expended by the investment community to process corporate disclosures. Using a unique manually-collected dataset on the employment history of IROs compiled from LinkedIn, Capital IQ, RelationshipScience.com, and appointment press releases, we show that disclosure readability in 8-K and 10-K filings improves and that companies are more likely to host analyst/investor days after hiring former analysts as IROs. Most importantly, we find increases in analyst following, institutional investors, and stock liquidity after hiring a former analyst as IRO. We conclude that both a disclosure and a network channel are at play in the relation between AIROs and increased interest from the investment community. Overall, our findings suggest that firms benefit from hiring Wall Street analysts as IROs.     

Disclosure by firms under voting pressure

Firms with a negative ISS recommendation see significant reduction in shareholder support for their proposals and are likely to face pressure to increase support in upcoming meetings. We find that firms facing voting pressure are significantly more likely to disclose positive content in discretionary sections of Form 8-K that result in higher abnormal stock returns in the months prior to the shareholder meeting. The 8-Ks with good news in discretionary sections, filed prior to the shareholder meeting, are associated with higher support for management proposals in upcoming meetings. Finally, this selective filing of 8-Ks with good news is higher when investors are distracted and lower for family firms. The results point to understudied effect of ISS voting recommendation on firm's selective disclosure.     

Enforcement mechanisms for SEC reporting deadlines

SEC filing deadlines accelerated for many firms over the past decade; nevertheless, the percentage of late 10-K filings has decreased by historical standards. From 2000 to 2007, six percent of 10-Ks are late but remain SEC compliant (via a Form 12b-25 filing). An additional 2.5 percent of all 10-K filings are both late and non-compliant. When analyzing all 10-K filings (i.e., both timely and late filings), we find that (1) relatively large stock exchanges, (2) greater analyst coverage, and (3) larger audit firms are each associated with improved timeliness and compliance in 10-K report filings.     

Do material weaknesses in information technology-related internal controls affect firms' 8-K filing timeliness and compliance?

Form 8-K reporting represents a different (and relatively unknown) information environment than annual 10-K filings. The current study takes advantage of a unique, comprehensive sample of 118,863 8-K filing event observations to investigate the association between firms' Form 8-K reporting timeliness/compliance with required reporting deadlines and their internal control weaknesses. In addition, the study investigates the association between firms' 8-K reporting and their information technology (IT) related internal control weaknesses. Overall, we find strong and robust evidence of a negative relation between the likelihood of the firm reporting a material internal control weakness and the timeliness and compliance of the firms' 8-K filings. We also find distinguishing effects of weaknesses involving IT-related controls. Given recent interest in IT-related controls and far-reaching reforms with stated objectives of improving disclosure timeliness, increasing the quality of internal controls and improving the quality of accounting information, we believe our results provide insights to accounting information systems academics, regulators, accounting standard setters and other interested observers.     

Factors associated with price reactions and analysts’ forecast revisions around SEC filings

We investigate the extent to which rapid accessibility of financial reports filed electronically through the Securities and Exchange Commission’s EDGAR system has affected the ability of investors and security analysts to use accounting data in pricing decisions and forecasting. Consistent with prior research, we find evidence confirming that stock price reactions to SEC filings are significant in the EDGAR period but not the pre-EDGAR period. We also find significant revisions in analysts’ one-quarter-ahead earnings forecasts around SEC filings dates in both the pre-EDGAR and EDGAR periods. The price and forecast revision evidence indicates that financial analysts have used SEC filings all along. However, it is the advent of EDGAR that has allowed individual investors to also use 10-K and 10-Q filings. Cross-sectional analyses indicate that in the EDGAR period, trading volume around the preceding earnings announcements may influence individual investors to react to SEC filings. In contrast, variables such as the earnings surprise and the level of total accruals attract the attention of financial analysts. Interestingly, analysts appear to have been less likely in the pre-EDGAR period to bear the cost of searching out each SEC filing to identify those with large total accruals, which are known only after examining the SEC filing itself.     

Regulation FD and analysts’ vs. investors’ weightings of the cash components of earnings

This paper investigates whether investors’ bias in processing the information contained in the cash components of annual earnings has been reduced, and whether the difference in bias between financial analysts and investors has decreased subsequent to Regulation Fair Disclosure (hereafter, Reg FD). We compare analysts’ and investors’ weightings of the three cash flow components of earnings, defined by Dechow, Richardson, and Sloan (2008), from 1985 to 2008, using historical weightings as benchmarks. Our results show that, in the post Reg FD period, the magnitude of investors’ (analysts’) mis-weightings has decreased (increased), and the differences between analysts’ and investors’ mis-weightings have become smaller. Overall, these results suggest that financial analysts’ information advantages over investors declined after Reg FD took effect, and that investors consequently are less biased in assessing the persistence of the cash flow components of earnings following the implementation of Reg FD.     

公平信息披露与分析师预测精度——来自中国上市公司的经验证据

证券分析师是证券市场重要的信息加工者和传播者,他们的信息行为对中小投资者和市场效率有重要影响。本文基于2003~2009年分析师的年度盈利预测数据,运用面板计量模型实证检验了公平信息披露规则的实施对分析师预测精度的影响。研究结果表明:分析师预测精度在规则实施后显著下降了;而且,随着规则实施时间的推移,分析师预测精度进一步下降;另外,分析师对信息披露水平较差的上市公司的预测精度下降幅度更大。     

The 15-day debate and the value of early release of information: Evidence from 10-K filings

We analyze the impact of enforcing a 60-day 10-K deadline on large accelerator filers (LAFs) relative to enforcing a 75-day deadline on accelerator filers (AFs) from 2006 to 2015. Using a regression discontinuity design, we find that LAFs are more likely to issue restatements after the 2006 SEC filing acceleration (“regulation”) has been introduced. The regulation causes LAFs to have lower information asymmetry, which is consistent with our finding that LAFs’ Internet search traffic for filings is lower. Overall, the market does not react stronger toward LAFs’ 10-K filings even though their 10-K filings are more timely. An unintended consequence of the regulation is an increase in filings by other firms during LAFs’ 10-K filing dates, which reduces investors overall attention toward these filings.     

Public policy and venture capital: Pursuing the disclosure goal

Using a sample of US firms that went public between 2000 and 2011, we conduct a textual analysis of 10-K filings to jointly evaluate the impact of the Sarbanes-Oxley Act and venture capital (VC) on the disclosure practices of both VC- and non-VC-backed IPOs. We find that the annual reports of VC-backed IPOs are much more readable than the annual reports of their peers. This finding suggests that VCs introduce more clarity into financial reporting to improve the reaction in the firm market price to create value and feed their own reputation. On the contrary, we find that the Sarbanes-Oxley Act forces firms to produce longer 10-Ks consistent with the aim of the reform (Title IV) to enhance financial disclosures. In turn, this ends up to negatively impact on the readability.     

Information interpretation or information discovery: which role of analysts do investors value more?

This study provides evidence that a significant percentage of analyst forecast revisions are issued promptly after a broad set of corporate public disclosures and that investors perceive these prompt revisions as more valuable than nonprompt revisions. These results hold for all revisions, revisions outside of the earnings announcement window, or revisions in weeks preceding the earnings announcements and are also robust to various sensitivity tests. Investors particularly value analysts?? prompt interpretation of earnings announcements, Form 8-K filings, or certain qualitative news. To the extent that prompt revisions are more likely to reflect analysts?? information interpretation role, our results suggest that investors value more highly analysts?? ability to interpret public disclosures, especially less structured or non-financial disclosures, than their ability for information discovery.     

Do banks care about analysts' forecasts when designing loan contracts?

We investigate whether banks rely on the information content in equity analysts’ annual earnings forecasts when assessing the risk of potential borrowers. While a long literature finds that analysts provide useful information to market participants, it is not clear that banks, which have access to privileged information, would benefit from publicly available analysts’ forecasts. If, however, banks do rely on this information, then more precise private information in earnings forecasts may inform banks. We focus our analysis on the requirement of collateral because it is a direct measure of default risk, whereas other loan terms such as interest spread and debt covenants can also protect against other risks, such as asset misappropriation. The direct link between collateral and default risk allows us to examine whether information from analysts is relevant to banks when designing loan contracts. Consistent with our predictions, we find that higher precision of the private information in analysts’ earnings forecasts is associated with a lower likelihood of requiring collateral, and this effect is larger when a borrower does not have a prior relationship with the lender or their accounting or credit quality is low. We also find that this association disappears after the implementation of Regulation FD, consistent with this regulation reducing analysts’ access to private information.     

Differences in the information environment prior to seasoned equity offerings under relaxed disclosure regulation

The SEC promulgated the Securities Offering Reform (SOR) in 2005 to ease disclosure restrictions prior to seasoned equity offerings (SEOs). The SEC argued that SOR would improve the information environment, but critics claimed it would allow firms to hype their stock. This paper is the first to examine the information environment at the time of capital formation under SOR. We find more frequent and accurate management earnings forecasts, more 8-K filings, greater absolute market-adjusted returns, and more positive stock returns leading up to the SEO issue date indicating a richer pre-SEO information environment with capital formation benefits after SOR.     

Threatened by wildfires: What do firms disclose in their 10-Ks?

We examine the determinants of firms’ 10-K disclosures on the threat of and exposure to wildfires. We match the location of wildfires in the United States to firms in the same county as the wildfire. We first establish that wildfire disclosure is far from widespread. On average, 6.1% of firms with wildfires in their headquarters county mention wildfire information in their 10-Ks. Second, we find that the number of wildfire days in a company's headquarters county is a key determinant of wildfire disclosure. The sensitivity of wildfire disclosure to wildfire exposure has also increased in recent years, emanating mainly from firms having experienced wildfires impacting their past operations and in the western states and the utility and banking industries, and from those exhibiting a high level of tangible assets. Third, we find that wildfire exposure has no bearing on stock price, whereas more wildfire-related disclosure lowers stock price.