Clustered Disclosures by Competing Firms: The Choice of Fiscal Year-Ends

Abstract

In some industries, firms schedule their disclosure at about the same time, usually around the end of the business season, whereas in others such disclosures are more dispersed over time. This paper examines firms' choice of fiscal year-ends (and hence of disclosure timing) relative to the business cycle and to the timing chosen by other firms in the industry. We model a stochastic setting in which the periodic closing of books yields information that is relevant for subsequent managerial decisions. The results show that although it is business seasonality that is the primary determinant of reporting period choice, competitive forces in the form of information transfer effects and proprietary disclosure costs have the ability to make firms' fiscal years deviate from the business season. Such deviations are more likely in industries in which costs exhibit low serial correlation across seasons, where cross-sectional correlation between firms' costs is high, or where within-season variations in business conditions are moderate. Furthermore, if incumbent firms are already reporting at the end of the business season, newer firms may have a greater inclination to make a different choice. The results also offer a novel rationale for what makes the end of the business cycle an attractive fiscal year-end. In our setting it is the desire to acquire managerially relevant information at an opportune time, rather than the ease of collecting information or the desire to optimize disclosure timing, that makes the end of a business cycle a preferred fiscal year-end.