The Consequences of Untimely Quarterly and Annual Financial Reporting

Abstract

We find that while the market reacts negatively to all late filing announcements, the reaction is stronger to late quarterly-filing announcements than to late annual-filing announcements, especially when accounting problems explain the delay. This is consistent with accounting problems signaling deeper problems when they delay quarterly filings than when they delay annual filings. Moreover, the market responds negatively when managers declare they intend to file within the SEC’s allowed grace period, even though such filings are considered timely. Interestingly, the market also “sees through” managers’ assertions that they will file within the SEC’s allowed grace period when they subsequently fail to do so. This is consistent with investors not accepting managements’ assertions in the late filing announcements at face value. In addition, abnormal returns continue to decline during the months following late filing announcements. Finally, operating performance also declines during the months following the delay announcement. We contribute to the literature by finding that delayed quarterly-filings have distinctly different valuation implications than delayed annual-filings; that accounting-problems play a unique role in signaling the seriousness of the delay; that the market does not naively accept managements’ delay-related assertions at face value; and that delay announcements signal continued poor performance.