Delayed Updating of Fair Values: Lack of Information or Intentional Delays?

Abstract

Using a sample of illiquid assets we provide evidence of the delay of updating fair values of individual assets reported in financial statements (delayed updating). Although we find that some is due to a lack of information, we find more evidence consistent with intentional delays. Further, we find delayed updating is observed more frequently when delaying bad news. We find that delayed updating is associated with positive serial correlation in portfolio returns, explaining a link found in prior research between illiquid assets and positive autocorrelation in portfolio returns. Finally, we document that delayed updating is associated with a reduction in financial reporting quality, consistent with delayed updating imposing economic costs on investors.